Example Question 6 Life is starting to settle down for the Johnsons. It feels good to know that they are starting to put their financial affairs in order, especially now that they know they have made some wise decisions on insurance policies. Some other changes have been positive as well, Mr. Johnson just received an $8000 raise, and Luz got hired three months ago as a full-time psychologist at the State Mental Health facility. Since the Johnsons were surviving on one income for the last year or so, they have become savvy about cutting many unnecessary expenses as well. Since the Johnsons have been able to save a sizable amount for their emergency funds, they now want to dabble in some sort of an investment plan. They have some broad goals in mind they want to achieve from their investments; they are quite overwhelmed by the investment choices. At this point in their lives, they are risk averse, because being financially comfortable is a recent phenomenon. Moreover, Martin has been with his company slightly over a year. It is possible if the financial successes continue they may be able to tolerate risk somewhat better. The Johnsons are hoping that Patricia, and John (their kids) will be above average students and secure scholarships when applying to colleges. However they would like to invest prudently for the next 10 years when the kids will be ready to attend college. They would also like to retire comfortably in their late 50s so that they can enjoy retirement, and also leave some assets for their children's inheritance. With reference to the above, answer the following questions: a) Before the Johnsons engage in any kind of investment plan, list some of the factors they need to consider in order to perform a financial checkup. (5 marks) b) Keeping in mind the Johnsons' investment goals in order of priority, suggest some possible investment instruments? (5 marks) c) Given that the Johnsons are very risk averse what will be their investment tradeoff? (5 marks) d) Like many other Americans, the Johnsons seem to think that Social Security benefits will provide a significant portion of their retirement needs. Is that a correct assumption