Use the information below to answer the following six questions. Average annual returns: Large-Cap Stocks--10.4 percent Foreign

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Question:

Use the information below to answer the following six questions.

Average annual returns:

Large-Cap Stocks--10.4 percent Foreign Stocks--7.8 percent
Mid-Cap Stocks--10.9 percent Corporate Bonds--5.5 percent
Small-Cap Stocks--11.3 percent Municipal Bonds--3.8 percent
Cash--1.9 percent
Age--40 Current Savings--$150,000
Current Annual Savings--$5,500 Tax Bracket--27 percent
Current Income from Savings--Zero Assumed Inflation--4 percent
Current Economic Outlook--3 (On a scale from 1-10)

Risk Tolerance Score--5 (On a scale from 1-10)

Use the Asset Allocator Calculator to develop an appropriate investment allocation model for Chandni and Hasit.

Using the sample returns above and the asset allocation model from question 1, calculate the weighted annual return projected for their portfolio.

Using the weighted return (rounded to the nearest whole percent) from question 2 and the Investment Return Calculator, determine the nominal value of Hasit and Chandni’s portfolio at age 60. Assume their savings rate is indexed to inflation, the account is not taxdeferred, and that their asset allocation does not change.

Using the Asset Allocator Calculator, recalculate questions 1 and 2 changing Hasit and Chandni’s risk tolerance score to 9 and leaving their economic outlook score unadjusted.

Using the Asset Allocator Calculator, recalculate questions 1 and 2 changing Hasit and Chandni’s economic outlook score to 7 and leaving their risk tolerance score unadjusted.

Changing which factor had the greater effect on the composition of the portfolio? Changing which factor had the greater effect on the return of the portfolio? Which factor do you believe should have more impact? Why?