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Case Problem 5.2 Susan Lussier’s Inherited Portfolio: Does It Meet
Her Needs?
Susan Lussier is 35 years old and employed as a tax accountant for a
major oil and gas exploration company. She earns nearly $135,000 a
year from her salary and from participation in the company’s drilling
activities. An expert on oil and gas taxation, she is not worried about job
security—she is content with her income and finds it adequate to allow
her to buy and do whatever she wishes. Her current philosophy is to live
each day to its fullest, not concerning herself with retirement, which is
too far in the future to require her current attention.
A month ago, Susan’s only surviving parent, her father, was killed in a
sailing accident. He had retired in La Jolla, California, two years earlier
and had spent most of his time sailing. Prior to retirement, he managed a
children’s clothing manufacturing firm in South Carolina. Upon
retirement he sold his stock in the firm and invested the proceeds in a
security portfolio that provided him with supplemental retirement
income of over $30,000 per year. In his will, he left his entire estate to
Susan. The estate was structured in such a way that in addition to a few
family heirlooms, Susan received a security portfolio having a market
value of nearly $350,000 and about $10,000 in cash.
Susan’s father’s portfolio contained 10 securities: 5 bonds, 2 common
stocks, and 3 mutual funds. The following table lists the securities and
their key characteristics. The common stocks were issued by large,
mature, well-known firms that had exhibited continuing patterns of
dividend payment over the past five years. The stocks offered only
moderate growth potential—probably no more than 2% to 3%
appreciation per year. The mutual funds in the portfolio were income
funds invested in diversified portfolios of income-oriented stocks and
bonds. They provided stable streams of dividend income but offered
little opportunity for capital appreciation.
Now that Susan owns the portfolio, she wishes to determine whether it is
suitable for her situation. She realizes that the high level of income