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GM530

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John J Frederick Jr
John J Frederick Jr

The document discusses the best way to invest a $10,000 inheritance over three years to earn $5,000 for a vacation. It evaluates alternatives like savings, CDs, bonds, stocks and mutual funds. A weighted model scores the alternatives based on meeting objectives of earning $5,000, 10% return, risk level and future returns. The model finds mutual funds the best choice due to their diversification, potential higher returns and fulfillment of objectives like earning $5,000 with a 10-11% return and medium risk level.

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Investing Inheritance Erin Camin John Frederick Joel Kellogg
Problem Statement What is the best way to invest an $10,000 inheritance from a relative?
Objectives To invest the $10,000 into an investment portfolio for three years that will grow our $10,000 invest to $15,000 for the purpose of using the $5,000 to go on a one week vacation in three years. To select a combination of stocks, bonds, mutual funds, and other investments that will lead a capital gain of 10% per year for three years. It is assumed that after the third year we will have enough money to go on a one week vacation.
Objectives To select investments to be placed into the portfolio that will minimize risks. We will diversify the portfolio by selecting investments that will average out the risk and returns. We will also use currencies and commodities to hedge the risks of the investments. Select investments that will continue to grow beyond the three year investment period.
Alternatives Savings Certificate of Deposits (CDs) Money Markets Bonds Mutual Funds Stocks
Weighted Model Alternatives for Investment Objectives stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 5208.75 3676.31 3446.59 3446.59 3602.52 4428.97 4190.87 max return of 10% or more 15% 11.00% 10.38% 10.38% 10.80% 13.00% 12.38% amount of risk 5 3 3 3.25 3.4 4 4 returns after five years 10113.57 6850.58 6381.50 6381.50 6699.32 8424.35 7920.43
Weighted Model Continued Proportional Scores for Alternatives Objectives stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 100.0 13.0 0.0 0.0 8.8 55.7 42.2 max return of 10% or more 100.0 13.5 0.0 0.0 9.2 56.8 43.2 amount of risk 0 125 125 109.375 100 62.5 62.5 returns after five years 100.0 12.6 0.0 0.0 8.5 54.7 41.2
Weighted Model Continued Weighted Scores Objectives weights stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 0.2 20 2.6 0.0 0.0 1.8 11.1 8.4 max return of 10% or more 0.2 20 2.7 0.0 0.0 1.8 11.4 8.6 amount of risk 0.5 0 62.5 62.5 54.7 50.0 31.3 31.3 returns after five years 0.1 10.0 1.3 0.0 0.0 0.9 5.5 4.1 50.0 69.1 62.5 54.7 54.5 59.2 52.5
Consequences and Tradeoffs The risk of the various alternatives. The stability and limitations of certificates of deposit (CDs). Stocks and Mutual Funds: higher return, higher risk
Conclusion Mutual Funds are the investment of choice – Lower risk due to diversification of an appropriate fund – Potential for higher returns – Mutual funds fulfill the specified objectives.

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GM530

  • 1. Investing Inheritance Erin Camin John Frederick Joel Kellogg
  • 2. Problem Statement What is the best way to invest an $10,000 inheritance from a relative?
  • 3. Objectives To invest the $10,000 into an investment portfolio for three years that will grow our $10,000 invest to $15,000 for the purpose of using the $5,000 to go on a one week vacation in three years. To select a combination of stocks, bonds, mutual funds, and other investments that will lead a capital gain of 10% per year for three years. It is assumed that after the third year we will have enough money to go on a one week vacation.
  • 4. Objectives To select investments to be placed into the portfolio that will minimize risks. We will diversify the portfolio by selecting investments that will average out the risk and returns. We will also use currencies and commodities to hedge the risks of the investments. Select investments that will continue to grow beyond the three year investment period.
  • 6. Weighted Model Alternatives for Investment Objectives stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 5208.75 3676.31 3446.59 3446.59 3602.52 4428.97 4190.87 max return of 10% or more 15% 11.00% 10.38% 10.38% 10.80% 13.00% 12.38% amount of risk 5 3 3 3.25 3.4 4 4 returns after five years 10113.57 6850.58 6381.50 6381.50 6699.32 8424.35 7920.43
  • 7. Weighted Model Continued Proportional Scores for Alternatives Objectives stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 100.0 13.0 0.0 0.0 8.8 55.7 42.2 max return of 10% or more 100.0 13.5 0.0 0.0 9.2 56.8 43.2 amount of risk 0 125 125 109.375 100 62.5 62.5 returns after five years 100.0 12.6 0.0 0.0 8.5 54.7 41.2
  • 8. Weighted Model Continued Weighted Scores Objectives weights stocks mutual funds 25% CD, 50% Mutual funds, 25% Stocks 25% Bonds, 50% Mutual funds, 25% Stocks 40% CDs, 60% Stocks 50% mutual funds, 50% Stocks 75% Stocks, 25% CD $5000 for vacation after three years 0.2 20 2.6 0.0 0.0 1.8 11.1 8.4 max return of 10% or more 0.2 20 2.7 0.0 0.0 1.8 11.4 8.6 amount of risk 0.5 0 62.5 62.5 54.7 50.0 31.3 31.3 returns after five years 0.1 10.0 1.3 0.0 0.0 0.9 5.5 4.1 50.0 69.1 62.5 54.7 54.5 59.2 52.5
  • 9. Consequences and Tradeoffs The risk of the various alternatives. The stability and limitations of certificates of deposit (CDs). Stocks and Mutual Funds: higher return, higher risk
  • 10. Conclusion Mutual Funds are the investment of choice – Lower risk due to diversification of an appropriate fund – Potential for higher returns – Mutual funds fulfill the specified objectives.