Southern New Hampshire University FIN 340 Home work 3

Module 3-Homework                                                                                                

Case Problem 5.2

Briefly assess Susan’s financial situation and develop a portfolio objective for her that is consistent with her needs.

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.

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.

From the response to question b, compare the nature of the security portfolio inherited by Susan with what you believe would be appropriate security portfolio for her, based on the response to question c.

What recommendations would you give Susan about the inherited portfolio? Explain the steps she should take to adjust the portfolio to her needs.

Case Problem 6.2

 Questions

How would you describe Wally’s present investment program? How do you think it fits him and his investment objectives?

Consider the Hydro-Electric stock.

Determine the amount of annual dividends Hydro-Electric can be expected to pay over the years 2013 to 2017.

1.                        (2)                              (1X2)

            Year                    Expected EPS($)               Expd Div Payout Ratio      Expected Divid

Compute the total dollar return that Wally will make from Hydro-Electric if he invests $6,000 in the stock and all the dividend and price expectations are realized.

 If Wally participates in the company’s dividend reinvestment plan, how many shares of stock will he have by the end 2017? What will they be worth if the stock trades at $80 on December 31, 2017? Assume that the stock can be purchased through the dividend rein vestment plan at a net price of $50 a share in 2013, $55 in 2014, $60 in 2015, $65 in 2016, and $70 in 2017. Use fractional shares, to 2 decimals, in your computations. Also, assume that, as in part b, Wally starts with 100 shares of stock and all dividend expectations are realized

1.                     (2)                       (3)                     (4)                   (5)                    (6)= (4/5)

Would Wally be going to a different investment strategy if he decided to buy shares in Hydro- Electric? If the switch is made, how would you describe his new investment program? What do you think of this new approach? Is it likely to lead to more trading on Wally’s behalf? If so, can you reconcile that with the limited amount of time he has to devote to his portfolio?