Barbara Analee, UC FINC311 past exam case study
Barbara Analee
Barbara Analee, a retired registered nurse and business woman, recently retired at age 50 to
pursue a life as a blues singer. She had been running a successful cosmetics and aesthetics
business using state-of-the-art lasers to treat wrinkles and skin blemishes. She is married to Tom,
a retired scientist (age 55). They have saved $3 million in their portfolio (Barbara contributed
$2.5 million to this portfolio) and now they want to travel the world. Their three children are all
grown and out of college and have begun to have their own families. Barbara now has two
grandchildren. Barbara and Tom feel that they have achieved a comfortable portfolio level to
support their family’s needs for the foreseeable future.
In order to meet their basic living expenses, Tom and Barbara feel that they need $75,000 per year
in today's dollars before taxes to live comfortably. As a trained professional, Barbara likes to be
involved in intensively researching investment opportunities. Barbara and Tom want to be able to
provide $10,000 per year (pre-tax) indexed for inflation to each of their grandchildren over the
next ten years for their college education. She believes that she can accomplish this through her
portfolio. She also wants to set aside $15,000 each year (pre-tax) indexed for inflation for
traveling for her musical performances at various dinner clubs around the U.S. She plans to travel
and perform until the end of her life.
They have no debt and they own their home without a mortgage. Most of their portfolio is
currently in large cap U.S. stocks and U.S. Treasury notes and bills. They have approached
Pamela Jaycoo, CFA, for guidance on how they could best achieve their financial goals while also
providing for their grandchildren’s college needs. Inflation is expected to increase at an annual
rate of 3 percent into the foreseeable future
a. What is the Analees return objective assuming a 10-year investment horizon (show your work
for full credit)?
b. What is Barbara’s risk tolerance? Provide strong argument to support your answer
c. Formulate the time horizon element and justify your response.
d. Formulate the liquidity requirements element and justify your response with at least strong
arguments.
e. Based on the information presented in the case, which one of the following portfolios should
the Analees choose. Provide strong reasons to support your answer.
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Barbara Analee, UC FINC311 past exam case study
U.S Stocks - S&P 500
U.S Stocks - Small Cap
Intl Stocks - Developing
U.S Corporate Bonds
U.S Treasury Bonds
Venture Capital
Real Estate
Cash
Total Return (before taxes)
Total Return (after taxes)
f.
Expected return
9%
10%
12%
5%
3%
11%
15%
1%
Portfolio A
20%
20%
15%
15%
10%
5%
10%
5%
8.80%
5.60%
Portfolio B
5%
15%
15%
0%
0%
30%
30%
5%
11.6%
7.4%
Portfolio C
10%
10%
10%
35%
25%
0%
0%
10%
5.7%
3.6%
For this question only, assume that Barbara has accepted an offer to work part-time as a
lounge singer in Las Vegas for the next five years but still continue with her travelling as a
blues singer (from now until the end of her life). This position will pay her a gross income of
$45,000 annually. However, the Analees annual living expenses will increase to $85,000.
After five years, Barbara plans on returning to retirement at which point, the Analees living
expenses will return to 75,000 per year in today's dollars. Also assume they will live for 30
more years. Based on this new information, what is the Analees required rate of return
Hint: This question requires you to calculate internal rate of return based on client ‘s cash
flows over multiple periods
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