Case 2 Fin 850

Case 2 – Retirement Investing

Part 1 pg. 320 (skip #2)

1. What advantages do the mutual funds offer compared to the company stock?

The company is currently private and is not expected to go public for 3 to 4 years. It would be harder to gather historical data on performance. Also, the board of directors currently sets the stock price so the market value will be harder to predict. While the mutual funds are investments that allow diversification in companies that are already publicly traded.

3. Assume you decide you should invest at least part of your money in large capitalization stocks of companies based in the United States. What are the advantages and disadvantages of choosing the Bledsoe Large Company Stock Fund compared to the Bledsoe S&P 500 Index Fund?

Bledsoe Large Company Stock Fund:

- Advantages: Has outperformed the “Market” (essentially the S&P 500) in six of the last eight years.

- Disadvantages: Charges 1.5% in expenses as opposed to the Bledsoe S&P 500’s charge of 0.15% in expenses

4. The returns on the Bledsoe Small Cap Fund are the most volatile of all the mutual funds offered in the 40l(k) plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Does this affect your decision to invest in this fund?

- An investor may want to invest in this fund to diversify their portfolio. Additionally, an investor may want to invest in this fund because it is more volatile. Increased volatility means increased risk. Higher risk can result in higher reward. An investor who is not extremely risk averse may choose to expose themselves to this risk given the potential increase in reward.

- Higher expenses for a fund such as this should be expected given the nature of the assets to be managed. Small cap stocks and increased volatility will most likely require more time and effort on behalf of the asset manager and as a result...