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Case Problem 3.1 The Perezes’ Good Fortune
Angel and Marie Perez own a small pool hall located in southern New
Jersey. They enjoy running the business, which they have owned for
nearly three years. Angel, a retired professional pool shooter, saved for
nearly 10 years to buy this business, which he and his wife own free and
clear. The income from the pool hall is adequate to allow Angel, Marie,
and their children, Mary (age 10) and José (age 4), to live comfortably.
Although he lacks formal education beyond the 10th grade, Angel has
become an avid reader. He enjoys reading about current events and
personal finance, particularly investing. He especially
likes Money magazine, from which he has gained numerous ideas for
better managing the family’s finances. Because of the long hours
required to run the business, Angel can devote 3 to 4 hours a day (on the
job) to reading.
Recently Angel and Marie were notified that Marie’s uncle had died and
left them a portfolio of stocks and bonds with a current market value of
$300,000. They were elated to learn of their good fortune but decided it
would be best not to change their lifestyle as a result of this inheritance.
Instead, they want their newfound wealth to provide for their children’s
college educations as well as their own retirement. They decided that,
like their uncle, they would keep these funds invested in stocks and
bonds.
Angel felt that in view of this plan, he needed to acquaint himself with
the securities currently in the portfolio. He knew that to manage the
portfolio himself, he would have to stay abreast of the securities markets
as well as the economy in general. He also realized that he would need
to follow each security in the portfolio and continuously evaluate
possible alternative securities that could be substituted as conditions
warranted. Because Angel enjoyed using his spare time to follow the
market, he strongly believed that with proper information, he could
manage the portfolio. Given the amount of money involved, Angel was
not too concerned with the information costs; rather, he wanted the best
information he could get at a reasonable price.
Questions