Comprehensive Case Assignment #1 Case 3 "Sharon Laynee" Must upload back as excel file - no PDFs. 1. Calculate the cost of Lucy's care Sharon estimates that Lucy's funds will be depleted in 10 years (as of 2027), which will be 10 years prior to Lucy's life expectancy. Lucy's care is $60,000 per year in today's dollars, increasing at 3%. Sharon estimates the present value of the fund needed to care for Lucy is $285,362. She will deposit $43,491 for 10 years to create the needed funds. Step 1 - get PV of payments the interest rate per period rate 0.053398 8.5-3.0 5.5 divided by 1.03 = 5.3398% total number of periods in investment nper payment made each period pmt future value fv $0.00 present value pv do formula here Step 2 - get PV of the fund needed to care for Lucy the interest rate per period rate 0.053398 total number of periods in investment nper 9 payment made each period pmt future value fv $455,753.00 present value pv do formula here Step 3 - amount she will need to deposit for 10 years the interest rate per period rate total number of periods in investment nper future value fv $0.00 present value pv payment made each period pmt do formula here 2. Calculate the cost of Allison's education Sharon wants to create an education fund for Allison so she can go to 4 years of college at a private university. Tuition is $30,000 per year in today's dollars and is expected to increase at 6% per year until Allison begins her studies in 15 years. Step 1 - get PV of payments the interest rate per period rate 0.06 total number of periods in investment nper payment made each period pmt 0 present value pv future value fv do formula here Step 2 - get PV of the tuition funds the interest rate per period rate 0.023585 8.5-6.0 2.358490566 total number of periods in investment nper payment made each period pmt future value fv $0.00 present value pv use their $277,799 to make step 3 come out right) Step 3 - amount she will need to deposit for 15 years the interest rate per period rate total number of periods in investment nper future value fv $277,800.00 present value pv $0 payment made each period pmt do formula here

EXECUTIVE SUMMARY THE FAMILY Sharon Laynee (age 50) is a part owner (30%) of Petro King, a C-corporation and recently divorced from Dick (age 50) who is unemployed and entitled to collect $8,000 per month in alimony from Sharon for the next 15 years (until age 65). Sharon's mother, Lucy (age 75), has Alzheimer's and is in a custodial care facility. Lucy's 20 year life expectancy is projected to cause her to outlive her financial resources. Sharon intends to support Lucy from the time when Lucy runs out of money until her death. Sharon's daughter, Amy, and Amy's husband, John, and their daughter, Allison, all live with Sharon. Sharon wants to provide a college fund for Allison in addition to allowing Amy, John and Allison to continue living with her while John works part-time and finishes his college degree. Sharon's salary last year was $350,000. She expects a 7% increase in her income this year. Her net worth is $1.955 million, of which $1,000,000 is the value of her interest in Petro King. Sharon has a mortgage and car loan as well as the alimony obligation for the next 15 years. If you consider the alimony she pays to Dick as debt, Sharon's debt load is high and could preclude her from qualifying to refinance her existing home. FINANCIAL G OALS AND C ONCERNS 1. Determine Sharon's tax filing status. Whatever her filing status, Sharon has informed you that she will spend any refund she gets. 2. Determine how to increase Sharon's monthly cash flow and/or reduce her monthly expenses. 3. Sharon plans to retire at age 65 with annual income of $200,000 in today's dollars including Social Secu- rity estimated to be $25,000 per year at full retirement age (67) (in today's dollars). 4. Sharon wants to provide for Lucy, her mother, who has a life expectancy of approximately 20 years although she has no memory (Alzheimer's). 5. Sharon wants to provide a quality college education for Allison, her granddaughter. 6. Sharon wants to review and update her risk management plan and investment portfolio. 7. Sharon wants to create an estate plan.

SHARON LAYNEE C ASE A NALYSIS178 INITIAL OBSERVATIONS AND R ECOMMENDATIONS Insurance - Cover the Risks Sharon should purchase the $1,000,000 of 20 year term life insurance for $2,032. While Sharon is single and will leave an estate once she gets her spending under control, life insurance will provide liquidity for her estate as well as a lump sum sufficient to fund Lucy's remaining care, Allison's education and Sharon's last expenses should Sharon die before these goals have been met. Sharon should purchase long-term care insurance for a premium of $1,000 per year. Sharon should purchase a Personal Liability Umbrella Policy (PLUP) of $1 million for a premium of $250 per year. Sharon should endorse personal property in the homeowner's policy to all risk. Add replacement value to personal property and a rider for collectibles (to cover the antique clock collection). Increase deductibles to reduce cost of policy. Savings projected between $2,000 (if Sharon refinances the existing home) to $4,000 (net savings of $3,750) if Sharon downsizes to a new home and purchases the PLUP. Debt Management Sharon has no credit card debt on her Statement of Financial Position but $4,000 in credit card expense on her Statement of Income and Expenses. She has a large mortgage in addition to an alimony obligation for the next 15 years. The home in which she lives has decreased in value, though it is not yet underwater. If Sharon sells the existing home for $800,000, the value on her Statement of Financial Position, and applies the net equity (after 7% cost to sell) of $144,000 toward a down-payment on a new, lower priced home of $450,000, she can qualify for a new 30-year mortgage of $306,000 at 4% or 15 year at 3.75%. STRENGTHS W EAKNESSES 1. Good earning capacity. 2. Petro King is appraised annually. Sharon has a put option to sell Petro King on/before age 65. 3. The possibility to earn consulting fees for two years after selling company. 4. A time horizon of 15 years to build a retirement portfolio. 5. She is willing to consider selling existing home or refinancing it to reduce living expenses. 6. She has a required rate of return of 8.5% or better, which is reasonable and should be achievable. 1. She has deficit spending of $29,888 expected in the current year. 2. Her emergency fund was reduced by the cost of divorce and deficit spending. 3. Her retirement assets were transferred subsequent to divorce. 4. There is confusion as to filing status for federal income tax. 5. The family history of Alzheimer's but no long- term care insurance coverage. 6. No life insurance coverage. 7. No personal liability umbrella policy. 8. A homeowner's policy without endorsements. 9. An adult child and family (Amy, John and Allison) living with Sharon who are not paying rent. 10. An outdated estate plan and other legal docu- ments.

c h a p t e r E XECUTIVE SUMMARY 179 3c a s e Sharon's emergency fund needs to be increased to at least 6 months of cash to cover non-discretionary expenses. She can do this by saving a part of any discretionary cash flow or federal income tax refund she might receive after implementation of income and expense changes. She qualifies for a 2016 federal income tax refund and has stated she will spend any refund she gets. She can use the 2016 federal income tax refund to pay closing costs on the new home. See Schedules: Schedules; Cash Flow Refinance; Cash Flow New Home; Income Statement 2017; Ratios Pre Recommendations; Ratios Post Recommendations, and Tax Analysis. Ratios Sharon's Emergency Fund ratio is 2.57 (poor) prior to implementation of recommendations. After imple- mentation, this ratio improves to 5.25 (good) but is still less than the goal of 6 months. She can build this fund over time as her cash flow improves and/or use part of her federal income tax refund for the prior year to improve the ratio. Six months of non-discretionary cash flow is the target as that is the elimination period on the long-term disability policy provided by her employer. One of the implementation recom- mendations is to purchase a long-term care policy. A 6 month emergency fund will complement the pur- chase of a long-term care policy with up to a 180 day elimination period. Sharon's debt ratio is very strong but it does not include the total of her alimony payment obligation to Dick. The debt ratio will improve if Sharon downsizes to a new home with a lower mortgage. The savings rate will change dramatically (from Weak to Very Strong) as Sharon implements the savings recommended to meet her financial goals to provide for Lucy and Allison. The additional savings will not be applied to Sharon's retirement savings goal, so the retirement savings ratio will not improve. Sharon's Investment Assets to Gross Pay ratio will change and improve over the next year as her salary increases, Amy and John pay rent, and Sharon reduces her expenses. The increased income and reduced expenses will create discretionary cash flow, allowing Sharon to save additional resources to meet her finan- cial goals. Performance ratios will be Poor to Very Poor until Sharon sells her existing home which has been decreasing in value, recovers from the transfer of her entire 401(k) plan account balance post divorce, and reallocates her underperforming investment portfolio.

SHARON LAYNEE C ASE A NALYSIS180 Investment Portfolio Create an Investment Policy Statement for Sharon's investment and retirement savings accounts according to a long-term time horizon of 15 years and in accordance with her PASS score of 24. In the short-term, Sharon needs to sell her house and file a tax return to claim the refund she is due for last year. Selling the house will decrease Sharon's expenses and will allow her to begin saving for Lucy's needs and Allison's college. Sharon will need to apply her tax refund for the prior year to offset the closing costs on the new home. We recommend that she direct some of her discretionary cash flow to cash and cash equivalents to build a 6 month emergency fund. Any remaining discretionary cash flow can/should be directed to increase savings for Sharon's retirement goal. Retirement Savings Sharon should continue contributing $24,000 per year to her 401(k) plan, and continue receiving $10,500 in employer matching funds for a total of $34,500 per year dedicated toward meeting her retirement income goal. Sharon's Savings for Retirement rate is Weak and will not provide sufficient retirement funds to meet Sharon's retirement income goal without additional savings. The value of Sharon's ownership interest (30%) in Petro King is projected to increase at 3% per year. Petro King's value accounts for a large portion of Sharon's Net Worth, and will upon sale, provide a large portion of the funds needed to meet Sharon's retirement income goal. On the balance sheet, we revalued Petro King from $1,000,000 to its present value, increasing it at 3% and discounting it at the 8.5% portfolio expected return. Sharon has a put option to sell her interest in Petro King prior to or at age 65. We do not know whether this put option is part of an entity buy-sell agreement or a "trusteed" cross purchase agreement. We also do not know if the existing agreement has been funded, i.e. the entity or trustee has purchased life and/or dis- ability insurance on all owners. Sharon should approach her co-owners to ensure the company or trustee has funded their put options so that purchasing their ownership interests can be accomplished due to death or disability. Improving the growth rate and value of Petro King will benefit Sharon and her partners. The projected retirement age of the other owners, and whether they also have put options to sell their business interests any time prior to age 65 or at age 65, is unknown. It is in their collective best interests to increase the value of the company but the value will be impacted by whether they sell their interest to each other, employees, or an outside party where economies of scale might impact and/or justify a higher valuation. Sharon and the other owners should begin the process of finding a buyer for their company so they can monetize (sell) their ownership interest at the most opportune time for this business.

c h a p t e r E XECUTIVE SUMMARY 181 3c a s e Tax Analysis Review Prior Year and Project Current Year Federal Income Tax Liability Sharon's tax filing status for 2016 and 2017 is Head of Household as a result of the granddaughter. While Sharon may consider her mother to be a dependent, as long as Lucy's assets are exclusively being used to pay for Lucy's care, Lucy is not and cannot be claimed as a dependent of Sharon's. John had active income last year before he was discharged from the Army. Amy and John will file a tax return for the prior year, and will file a tax return for the current year to report John's part-time earnings and claim any Earned Income Tax Credit and/or Child Credit available to them. Amy and John are not Sharon's dependents. The answer to Sharon's confusion about her filing status revolves around the question of whether Allison can be considered a dependent of Sharon's. If Allison can be considered a qualifying child, then Sharon can use the head of household filing status. Sharon's grandchild, Allison, can serve as a qualifying child allowing Sharon to use the Head of Household filing status on her federal income tax return even though Allison is not a dependent of Sharon. Filing Status - Head of Household (background) Sharon may be able to file as head of household if she meets all the following requirements. 1. She is unmarried or "considered unmarried" on the last day of the year. 2. She paid more than half the cost of keeping up a home for the year. 3. A "qualifying person" lived with her in the home for more than half the year (except for temporary absences, such as school). However, if the "qualifying person" is a dependent parent, that parent does not have to live with the taxpayer claiming head of household status. There are four tests to determine whether a child is a qualified child to claim a dependency exemption for the child on your tax return. These four tests are also used as the definition of a child for a taxpayer to qualify to use the Head of Household filing status. All of the four tests must be met: Amy and Allison pass the relationship test and abode test. Amy failed the age test because she is 28. Allison passes this test because she is less than 19. Amy failed the support test because she is married to John who had income and provided more than half of her support. Allison meets the support test because she lives in Sharon's home. Sharon cannot take a dependency exemption for Allison who will be claimed as a dependent on her parent's tax return, but her presence in Sharon's home allows Sharon to claim the head of household filing status. A child of the taxpayer who does not meet the qualifying child requirements (Amy) may still meet the requirement to be a qualifying relative of the taxpayer who wants to use the head of household filing status. There are four tests for a qualifying relative to qualify as a dependent of a taxpayer: Relationship Test Amy and Allison meet this test Abode Test Amy and Allison meet this test Age Test Allison meets this test Support Test Allison meets this test

SHARON LAYNEE C ASE A NALYSIS182 Sharon must maintain (pay more than half the cost of) a household as her home which is also the principal place of residence for more than half the year for: a qualifying child who is claimed as a dependent, an unmarried qualifying child who lives with the taxpayer but is not a dependent of the taxpayer (for example, Allison lives in Sharon's home but is claimed as the dependent of John and Amy), a qualifying relative who is claimed as a dependent of the taxpayer, and is actually related to the taxpayer. If a married child of the taxpayer (Amy) lives with the taxpayer but cannot be claimed as a dependent of the taxpayer either because the child files a joint return (Amy and John file married filing jointly tax returns), or fails to meet a citizenship or residency test, the taxpayer is not allowed to use the head of household filing status. However, Sharon meets the requirement to claim head of household filing status because of Allison. Allison is an unmarried qualifying child who lives with Sharon but is not a dependent of Sharon's. Head of household filing status (bracket) is beneficial to Sharon and means an additional reduction in her estimated tax liability for the current year. See Schedule: Tax Analysis. Sharon should review her personal expenses to determine if she qualifies for a home office deduction. Even without home office deductions, a tax projection for the prior year reflects Sharon should file for a refund due to the alimony she paid to Dick and other itemized deductions. See Schedule: Tax Analysis 2016. Sharon should file a new W-4 which reflects the estimated reduced withholding for federal income tax due to filing head of household. The reduction in her 2017 withholding will increase her take home pay in the current and future tax years. Sharon has indicated she will begin contributions to funds for Lucy's needs and Allison's education from the savings she realizes due to downsizing to a new, lower priced home. However, she has told you that she will spend any tax savings until she must modify her spending. Estate Planning Review and Update Will and Other Documents Execute a new will. Coordinate beneficiary designations with the new will. Create a Revocable Living Trust and transfer Sharon's assets and business interest to the trust so it can pro- vide asset management in case of disability or incapacity. Name the Revocable Living Trust the beneficiary of the new 20-year term life insurance policy on Sharon's life. Relationship Test Amy, John and Allison meet this test Gross Income Test Amy and John fail this test; Allison meets this test Support Test Amy and John fail this test; Allison meets this test Not a Qualifying Child Test Amy and John meet this test; Allison fails this test

c h a p t e r D ISCUSSION TOPICS 183 3c a s e DISCUSSION TOPICS 1. Treatment of alimony in ratios. Alimony is a required payment that may extend for a number of years. When calculating ratios for Sharon should her income be reduced by the annual amount she is required to pay her ex-husband, or should the annual alimony amount be treated as debt? How will the treatment impact Sharon's housing ratios? Other ratios? 2. Extended family and your finances. Sharon's daughter and her family are living with her and their pres- ence may have contributed to her deficit spending. It is understandable to want to help family but at what cost? Should Sharon request or require her daughter to pay rent to live with her? If Sharon does charge her family rent, how should she treat it on her federal income tax return? Can Sharon deduct payments made on behalf of her family on her federal income tax return? 3. Incapacitated parent and dependency status. Sharon's mother, Lucy, lives in a special facility for Alzhei- mer's patients and pays for the facility with her own resources. Sharon considers her mother dependent but Lucy does not meet the tax definition of a dependent. Discuss incapacity and how to handle it from a legal, financial and decision making perspective versus the tax definition of dependent. 4. Decision making for a 'Single' friend or loved one. Sharon is single and has a parent with Alzheimer's. Single adults need to prepare for the possibility that they become disabled or incapacitated. Adult children are the most likely to be named in documents, but may not be the best person for the job. Discuss the skills needed and documents required for a friend or loved one to help a single adult who becomes aged, disabled or incapacitated. 5. Sale of a home post-divorce. Sharon was awarded the family home as part of the divorce settlement. Ali- mony payments and other issues impacted Sharon's financial condition making it difficult for her to keep the house. If Sharon sells the home, will the sale of the home post-divorce be treated differently than a typ- ical home sale? Yes, no gain or loss on transfer between spouses. Basis and holding period carry over to spouse who receives property. Exclusion of gain on the sale would be limited to $250,000 because Sharon is Single, but Sharon will not have a gain on the sale anyway. 6. Traumatic events and lifestyle changes. Death of a loved one, divorce, and disability are traumatic events that profoundly impact people in different ways. Sharon seems to be a take charge lady able to make deci- sions on her own. However, Sharon's decision making process might have included her ex-husband. If it did, should there be a 'no decision' time period during which Sharon should be counseled to hold the sta- tus quo or not make any significant changes? Should she put off most financial decisions or only the ones that will impact her long-term? 7. Small business as a source of income. Discuss Petro King's use of the stock holding requirement to keep Sharon and her co-owners involved in the business. Sharon has a put option that she can exercise at any time up to age 65. Should she consider exercising her put option now or before age 65 to solve her finan- cial problems? 8. Small business as an investment. Discuss how to determine an appropriate growth rate Petro King espe- cially since the sale of Sharon's interest in the business is expected to fund her retirement. Should the growth rate required for Petro King be the same or greater than Sharon's required rate of return for her investment portfolio?

SHARON LAYNEE C ASE A NALYSIS184 9. Small business and divorce. Sharon owned her part of Petro King before she married Dick and was not required to share her ownership interest in the business with him. Discuss various ways for a small business owner to protect themselves and their ownership interest from a forced sale due to divorce. Discuss Pre and Post Nuptial Agreements, business partnership agreements, shareholder agreements, confidentiality agree- ments, structured settlements. 10. Expensive cars, collectibles and lifestyle. Sharon purchased an expensive car (Mercedes) post divorce and owns an antique clock collection. She is having financial trouble that may force her to sell her family home. Some have suggested Sharon sell the car, the collection or both, but Sharon resists. Discuss pros and cons of selling the car, the collection, and/or the home. ACCOMPLISHING GOALS KEY I SSUES The key issues include: 1. an alimony obligation that extends for years which has contributed to Sharon's deficit spending, 2. the change in Sharon's federal income tax filing status, 3. the impact of the divorce property settlement on Sharon's retirement account, 4. the addition of a new financial goal to provide a private college education for Sharon's granddaughter, and 5. the wish to support Sharon's mother, Lucy, if she runs out of money. NARRATIVE Sharon wants to help her family and has several family members depending on her, but she does not have life insurance. She needs to address risk management issues as well as her deficit spending. Sharon also needs to determine her filing status for federal income tax purposes immediately because the answer (Head of Household) will allow her to file her tax return to collect a sizable federal income tax refund. The refund will help Sharon handle her deficit spending and provide the funds needed to pay for the sale of her existing home and the purchase of a new, less expensive home. While it may be painful to sell her home, selling it will allow Sharon to reduce her living expenses and increase her discretionary cash flow which can be used to address Sharon's other financial goals which include rebuilding her retirement portfolio, making contributions to a college fund for Allison and setting aside funds to pay for Lucy's care, if necessary. GOAL: S ALE OF SHARON'S BUSINESS I NTEREST AT A GE 65. The value of Petro King, a C-Corporation, is based on an appraisal and the fact that Sharon has a put option to sell (based on the appraisal price) anytime she wants up to age 65, when she is required to sell. The business is valued annually and there is no minority or liquidity discount considered. The growth rate for the company is 3% per year. Sharon plans to continue working for 15 years, until age 65, and use the put option to sell her interest in Petro King. The assumption was made that Sharon could be offered an opportunity to continue working for Petro King for two years following the sale of her interest. Sharon has indicated she wants to sell her interest and retire. In 15 years, at a 3% growth rate, Sharon's $1,000,000 interest in Petro King is projected to be worth $1,557,967. The present value of receiving this amount in 15 years is $458,260 using an 8.5% discount rate. FV = $1,557,967, N = 15, i = 8.5%, PMT = 0, PV = $458,260. We put Petro King on our Balance Sheet following recommendations at the present value of $458,260 so that is could appreciate at her portfolio earnings rate.

c h a p t e r A CCOMPLISHING GOALS 185 3c a s e The value of Sharon's interest in Petro King when sold at age 65 and contributed to her retirement fund in the year she retires will help to make Sharon's retirement goal obtainable. See Schedule: Business. GOAL: S HARON'S RETIREMENT (See software calculation - Long-Term Goals 2 PV All Goals) Sharon cannot retire at age 65 with $200,000 per year, meet all three of her goals of Allison's education and Lucy's potential needs. However, she could: Retire at age 65 with $160,000 and meet her other two goals at the current savings rate. Plan to retire at age 67 with $200,000 and meet her other two goals at the current savings rate. Wait and see because Lucy may or may not need her support and it may be less than she is currently expecting. Plus, Dick could die anytime and her alimony would stop upon his death. GOAL: L UCY'S C ARE Sharon estimates that Lucy's funds will be depleted in 10 years (as of 2027), which will be 10 years prior to Lucy's life expectancy. Lucy's care is $60,000 per year in today's dollars, increasing at 3%. Sharon estimates the present value of the fund needed to care for Lucy is $285,362. She will deposit $43,491 for 10 years to create the needed funds. Using the Account Balance Method Using the Traditional Method See Schedule: Lucy's needs GOAL: A LLISON'S E DUCATION F UND Sharon wants to create an education fund for Allison so she can 4 years of college at a private university. Tuition is $30,000 per year in today's dollars and is expected to increase at 6% per year until Allison begins her studies in 15 years. Step 1 Step 2 Step 3 PV = $60,000 PMT AD = $80,635 FV = $645,200 i = 3% i = 5.3398% (inflation-adjusted rate) i = 8.5% N = 10 N = 10 N = 10 PMT 0 FV = 0 PV = 0 FV = $80,635 PV = $645,200 PMT = $43,491 Step 1 Step 2 Step 3 PMT = $60,000 FV = $455,753 PV = $285,362 i = 5.3398 (inflation-adjusted rate) i = 5.3398 i = 8.5% N = 10 N = 9 N = 10 FV 0 PMT = 0 FV = 0 PV = $455,753 PV = $285,362 PMT = $43,491

SHARON LAYNEE C ASE A NALYSIS186 Using the Account Balance Method Using the Traditional Method See Schedule: Education OTHER CONSIDERATIONS Sharon can begin claiming Social Security benefits after she retires. If she claims at age 65 she will receive a reduced benefit of $21,667 or $25,000 at age 67. Review and reallocate Sharon's investment portfolio based on her PASS score of 24. Step 1 Step 2 Step 3 PV = $30,000 PMT AD = $71,897 FV = $277,800 i = 6% i = 2.3585(inflation-adjusted rate) i = 8.5% N = 15 N = 4 N = 15 PMT 0 FV = 0 PV = 0 FV = $71,897 PV = $277,799 PMT = $9839.77 (rounded to $9,840) Step 1 Step 2 Step 3 PMT = $30,000 FV = $113,245 PV = $81,712 i = 2.3585 (inflation-adjusted rate) i = 2.3585 i = 8.5% N = 4 N = 14 N = 15 FV 0 PMT = 0 FV = 0 PV = $113,245 PV = $81,712 PMT = $9,839.76 (rounded to $9,840)

c h a p t e r K EY SCHEDULES 187 3c a s e KEY SCHEDULES PASS SCORE AND A SSET A LLOCATION R ECOMMENDATIONS Questions Strongly Agree Agree Neutral Disagree Strongly Disagree Sharon 1. Earning a high long-term total return that will allow my capital to grow faster than the inflation rate is one of my most important investment objectives. 5 4 3 2 1 4 2. I would like an investment that provides me with an opportunity to defer taxation of capital gains to future years. 5 4 3 2 1 5 3. I do not require a high level of current income from my investments. 5 4 3 2 1 5 4. I am willing to tolerate some sharp down swings in the return on my investments in order to seek a potentially higher return than would normally be expected from more stable investments. 5 4 3 2 1 3 5. I am willing to risk a short-term loss in return for a potentially higher long-run rate of return. 5 4 3 2 1 4 6. I am financially able to accept a low level of liquidity in my investment portfolio. 5 4 3 2 1 3 Global Portfolio Allocation Scoring System (PASS) for Individual Investors - developed by Dr. William Droms 24 (Georgetown University) and Steven N. Strauss, (DromsStrauss Advisors Inc.) - model used with permission. Global Portfolio Allocation Scoring System (PASS) for Individual Investors PPortfolio Analysis (after implementation) SSharon Laynee Current Porfolio (Dollars) Current Portfolio Percentage PASS RT3 Long- term Recommended Portfolio Difference Expected Rates of Return Current Expected Return PASS Expected Return Cash and Money Market Fund $76,532 16.0% 3% 13.0% 2.5% $1,913 $358 Treasury Bonds/ Bond Funds $0 0.0% 12% -12.0% 4.0% $0 $2,289 Corporate Bonds/ Bond Funds $0 0.0% 10% -10.0% 6.0% $0 $2,861 International Bond Funds $0 0.0% 5% -5.0% 7.0% $0 $1,669 Index Fund $400,310 84.0% 20% 64.0% 9.0% $36,028 $8,583 Large Cap Funds/Stocks $0 0.0% 15% -15.0% 10.0% $0 $7,153 Mid/Small Funds/Stocks $0 0.0% 10% -10.0% 12.0% $0 $5,722 International Stock Funds $0 0.0% 10% -10.0% 13.0% $0 $6,199 Real Estate Funds $0 0.0% 15% -15.0% 8.0% $0 $5,722 $476,842 100.0% $37,941 $40,555 Expected Return 7.96% 8.51%