Week 03 Assignment 03

Week 03 Assignment 03

Word Template

Revised January 2013

In light of what you learned from week 03 lecture, your careful reading of chapters 12, 13, and 14 of Malkiel’s book and chapters 2 and 5 of the Reilly text and by utilizing 12-point font, and this word template submit the answers and solutions for all the following questions and problems from the Reilly’s text.

NOTE: In order to receive full credit, you must use this Word Template to answer the questions and provide solutions for all the problems.  If you are using an Excel spreadsheet for calculating the numerical results, you should submit such a spreadsheet as a supplement to this word template or cut and paste your results from Excel document into this word document.

Chapter 2:

Question:2, 6, 7, and 9; Problems: 1, 4, and 5.

2) A person who is 63 years old cannot take the same risks as a 25 year old. The reason for this is that he/she will soon stop receiving a salary to overcome a loss due to a bad investment. The suggestion would be to invest in stock and bond investments to meet the income needs required by the investor. As suggested by Reilly in this week’s lesson, a person nearing retiring age should invest in fixed income securities, and they should be about 55% to 65% of their total portfolio. From this, a 5% to 15% should be invested in short-term securities for extra liquidity and safety. The remaining 35% to 45% should be invested in high-quality stocks that have a similar risk to the S&P 500 index. The main suggestion would be to also not touching the investments until retirement age. Taking out the funds will automatically be taxed if they came from a tax-deferred account.

6) Policy statements should be different for a 45 year old and a 35 year old. Main difference is that one has less time to invest than the other. Both of these people would have different investment objectives and constraints. In this case, goal objectives and risk tolerance need to be taken into...