Reference no: EM131276047

1. Refer to the "Susan Lussier's Inherited Portfolio: Does It Meet Her Needs?" case study, respond to the questions.(need at least 300 words, answer each questions)

2. Provide a stock market overview last week (11/7/2016-11/11/2016) and discuss a financial event (200 words)

Case: 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, 2 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 heir' looms, 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 5 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.

The Securities Portfolio That Susan Lussier Inherited

Bonds

Par Value ($)	Issue	S&P Rating	Interest Income ($)	Quoted Price ($)	Total Cost ($)	Current Yield (%)
40,000	Delta Power and Light 10.125% due 2029	AA	4,050	98.000	39,200	10.33
30,000	Mountain Water 9.750% due 2021	A	2,925	102.000	30,600	9.56
50,000	California Gas 9.500% due 2016	AAA	4,750	97.000	48,500	9.79
20,000	Trans-Pacific Gas 10.000% due 2027	AAA	2,000	99.000	19,800	10.10
20,000	Public Service 9.875% due 2017	AA	1,975	100.000	20,000	9.88

Common Stocks

Number of Shares	Company	Dividend per Share ($)	Dividend Income ($)	Price per Share ($)	Total Cost ($)	Beta	Dividend Yield (%)
2,000	International Supply	2.40	4,800	22	44,900	0.97	10.91
3,000	Black Motor	1.50	4,500	17	52,000	0.85	8.82

Mutual Funds

Number of Shares	Fund	Dividend per Share Income ($)	Dividend Income ($)	Price per Share ($)	Total Cost	Beta	Dividend Yield (%)
2,000	International Capital Income A Fund	0.80	1,600	10	20,000	1.02	8.00
1,000	Grimner Special Income Fund	2.00	2,000	15	15,000	1.02	7.50
4,000	Ellis Diversified Income Fund	1.20	4,800	12	48,000	0.90	10.00
		Total annual income: $33,400		Portfolio value: $338,000		Portfolio current yield: 9.88%

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 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 adjustment.

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.