FIN 402 help A Clearer path to student success/uophelp.com FIN 402 help A Clearer path to student success/uop | Page 25

provided by the portfolio will be taxed at a rate (federal plus state) of
about 40%. Because she does not currently need it, Susan plans to invest
the after-tax income primarily in common stocks offering high capital
gain potential. During the coming years she clearly needs to avoid
generating taxable income. (Susan is already paying out a sizable portion
of her income in taxes.) She feels fortunate to have received the portfolio
and wants to make certain it provides her with the maximum benefits,
given her financial situation. The $10,000 cash left to her will be
especially useful in paying brokers’ commissions associated with
making portfolio adjustments.
Questions
a. Briefly assess Susan’s financial situation and develop a portfolio
objective for her that is consistent with her needs.
b. Evaluate the portfolio left to Susan by her father. Assess its
apparent objective and evaluate how well it may be doing in
fulfilling this objective. Use the total cost values to describe the
asset allocation scheme reflected in the portfolio. Comment on the
risk, return, and tax implications of this portfolio.
c. If Susan decided to invest in a security portfolio consistent with
her needs—indicated in response to question a—describe the
nature and mix, if any, of securities you would recommend she
purchase. Discuss the risk, return, and tax implications of such a
portfolio.
d. From the response to question b, compare the nature of the security
portfolio inherited by Susan with what you believe would be an
appropriate security portfolio for her, based on the response to
question c.
e. What recommendations would you give Susan about the inherited
portfolio? Explain the steps she should take to adjust the portfolio
to her needs.
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