Suzanne, age 60, recently retired from her position as an international fashion designer. She has accumulated $3 million for retirement. She supports her son, Barry, age 40, his wife, and three children (age 14, 12, and 10). Neither Barry nor his wife work outside the home.

Suzanne estimates that she will need $60,000 (in todays’ dollars) annual to live comfortably. Inflation is expected to be 3% annually, and she is in the 28% marginal tax bracket. She plans to continue supporting her son and his family on $30,000, also indexed for inflation. However, she has informed them that should she die, a gift fund will be established with the local museum and that her sons’ family will only receive $20,000 in interest from the gift account. Otherwise, the fund will be managed for the benefit of the museum. Thus, another goal is to maintain her principal in the retirement fund for her gift account with the museum.

Suzanne has a desire to travel to Europe for two months as a retirement present to herself and requires $50,000 for her travel expenses. Suzanne states that she is willing to assume some risk to obtain her objective.

1. Her personality is spontaneous.
2. Her immediate liquidity needs or one time expense is 50,000 for an overseas trip and her son’s family needs of 30,000, with a total of 80,000.
3. Prudent investor rule applies in Suzanne’s case.
4. The PF return objective is 8.40%. This is the return before we consider both tax and inflation. The real return after we consider both tax and inflation will be much higher than 8.40%.

12. The incorrect statement includes:

1. University endowment has decided to add to its socially responsible investment policy in early 2014 to divest from certain types of fossil fuels. In all, this has meant $35 million in funds — 5 percent of the school's overall endowment — being shifted and reinvested. This is a good example to show that endowment/foundations normally have unique circumstances to consider, including social responsible investment.
2. We can invest in the whole stock market using ETF, for instance, buying QQQ and SPY. We can also short the whole stock market, for instance, buying SQQQ.
3. We can get profit from buying a stock in two ways: dividends and capital gains. First, some stocks pay investors dividends, and some do not. Second, the stock price can go up. When we buy low and sell high, we realize the capital gains.
4. We have Zoom Q&A session once a week and it is mandatory to attend.

13. The correct statement includes______________

1. Generally speaking, institutional portfolios include foundations, endowments, pension funds, insurance portfolios and bank portfolios.
2. An individual investors can only have one type of personality.
3. The older of individual investors, generally speaking the higher risk she/he can take.
4. 401(K) is a type of defined benefit pension plan.

Answer rating: 100% (QA)

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