Reference no: EM133377247

Stephanie Explores Investing

Stephanie Fox is a 28-year-old management trainee at a large chemical company. She is single, has an annual salary of $75,000 (placing her in the 22 percent tax bracket), and her monthly expenditures come to approximately $3,500. During the past year or so, Stephanie has managed to save around $11,000, and she expects to continue saving at least that amount each year for the foreseeable future. Her company pays the premium on her $100,000 life insurance policy. Because Stephanie's entire education was financed by scholarships, she was able to save money from the summer and part-time jobs she held as a student. Altogether, she has a nest egg of nearly $38,000, out of which she'd like to invest about $30,000. She'll keep the remaining $8,000 in a bank CD that pays 3 percent interest and will use this money only in an emergency. Stephanie can afford to take more risks than someone with family obligations can, but she doesn't wish to be a speculator; she simply wants to earn an attractive rate of return on her investments.

Critical Thinking Questions

Question 1: What investment options are open to Stephanie?

Question 2: What chance does she have of earning a satisfactory return if she invests her $30,000 in (a) blue-chip stocks, (b) growth stocks, (c) speculative stocks, (d) corporate bonds, or (e) municipal bonds?

Question 3: Discuss the factors you would consider when analyzing these alternate investment vehicles.

Question 4: What recommendation would you make to Stephanie regarding her available investment alternatives? Explain.