Ms. Peabody

Case 49A

Beatrice Peabody

John Osborne, Ryan James, Melanie Ware, and Tyler Kenkel

To: Dr. Alfred Kelly

Financial Problems: The main financial problem in this case is the fact that Ms. Peabody does not have a lot of diversification in her portfolio. She wants an optimal growth rate while reducing the opportunity of risk. Peabody wants to understand the valuation of stocks and bonds. She wants to maintain a steady stream of investment income in order to maintain her current standard of living, while also having enough growth to pay for her 9 grandkid’s college. The majority of her stocks and bonds are in James River which had negative earnings for 3 years and poor ratings from Standard and Poor.

Financial Models: There are a few models that were vital to the case. We used the financial analysis listed in the text, the normal growth model, perpetuities, historical data, and projections.

Financial Concepts: A lot of the major financial concepts revolved around the idea of risk. The ones that were used predominately in this case were interest rate risk, reinvestment risk, and inflation risk. A concept that was a part of the narrative was the difference between the expected rate of return and the required rate of return. Another part of the narrative was also the valuation techniques for stocks and bonds along with the concept of the Time Value of Money.

Introduction: -Tyler

When it comes to bank loyalty, Beatrice Peabody personifies every characteristic and 65 years of loyalty will do that. Ever since her father, who was employed by James River Corporation (JRC), opened up her savings account on her 6th birthday, First National Bank has been her safe place to keep her financial assets. As an employee of JRC, Beatrice’s father often bought stock and bonds, which was a part of his employee option. Through that and her success in real-estate, Beatrice had attained an immense amount of financial assets paving her way to having a huge part in her local community.

        Sometimes when you are engraved in a bank like Beatrice was, you get special treatment and generally receive what you want. For Beatrice, that was Sandra Gilbert, who joined the First National Bank as a loan officer with dreams of making it to her big leagues, the investment department.  After starting a relationship through Gilbert helping Peabody with transactions, Peabody officially asked the bank president, Rodney Samuelson that Gilbert be assigned to help Peabody understand and manage her finances.

Sanderson was interested in maintaining her stable stream of investment income, but was also looking to grow some of her investments so she could help pay for her 9 lovable grandchildren. The first thing that Gilbert noticed was the lack of diversification in Peabody’s assets. Besides a few accounts, most of Peabody’s assets were linked to James River stock and bonds which for three years straight had been declining. Peabody graciously agreed to reinvest her stocks and bonds somewhere else, but only after Gilbert explained the basic principles behind valuation on her portfolio.