INVESTING BASICS AND EVALUATING BONDS Continuing Case The triplets are now three-and-a-half years old and Jamie Lee and Ross, both 38, are finally beginning to settle down into a regular routine. The first three years were a blur of diapers, feedings, baths, mounds of laundry, and crying babies! Jamie Lee and Ross finally went out to a welcome dinner out on the town. Ross’s parents were watching the triplets. They were having a conversation about their future and the future of the kids. They figured college expenses will be $100,000, and their eventual retirement was a major worry for both of them. They have dreamed of owning a beach house when they retire. That could be another $350,000, 30 years from now. They wondered how could they possibly afford all of this. They agreed that it was time to talk to an investment counselor, but they wanted to organize all of their financial information and discuss their family’s financial goals before setting up the appointment.
1. Describe the stage in the adult life cycle (Exhibit 1-1) that Jamie Lee and Ross are experiencing right now. What are some of the financial activities that they should be participating in at this stage?
2. After reviewing Jamie Lee and Ross’s current financial situation, suggest specific and measurable short-term and long-term financial goals that can be implemented at this stage.
3. Using the investment goal guidelines, assess the validity of Jamie Lee and Ross’s short- and long-term financial goals and objectives: Financial Question Short-Term Goals Long-Term Goals
1. How much money do they need to satisfy their investment goals?
2. How much risk are they willing to assume in an investment program?
3. What possible economic or personal conditions could alter their investment goals?
4. Considering their economic conditions, are their investment goals reasonable?
5. Are they willing to make the sacrifices necessary to ensure that they meet their investment goals?
4. Using the formula for allocating investments and the risk involved, assess how much of Jamie Lee and Ross’s assets should be allocated in higher-risk growth investments? How should the remaining investments be distributed and what is the associated risk?
5. Jamie Lee and Ross need to evaluate their emergency fund of $21,000. Will their present emergency fund be sufficient to cover them should one of them lose their job?
6. Jamie Lee and Ross agree that by accomplishing their short-term goals, they can budget $5,000 a year toward their long-term investment goals. They are estimating that with the allocations recommended by their financial advisor, they will see an average return of 7 percent on their investments. The triplets will begin college in 15 years and will need $100,000 for tuition. Using the time value of money calculations found in the “Figure It Out!” information box found in this chapter, decide if Jamie Lee and Ross will be on track to reach their long-term financial goals of having enough money from their investments to pay the
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