Portfolio Management

Background of Marconi's Family:

The Marconi's family consists of 3 members, the parents and one son. Both parents are in early fifties aiming to retire within 10 years their son is 19 years old pursuing his education in a college.

The parents fall under the consolidation investment phase concluding that their income derived from their annual salaries (100,000 $) covers their living expenses (including their son's college expenses). The parents are saving 25.000 $/ year with the expectation of little changes of their income due to inflation and addition of their son's college expenses.

Frank and Estelle personal investments total $600,000, and they plan to continue to manage the portfolio themselves. They prefer ‘‘conservative growth investments with minimal volatility.’’ One-third of their portfolio is in the stock of Estelle’s employer, a publicly traded technology company with a highly uncertain future. The shares have a very low cost basis for tax purposes. Frank and Estelle are currently taxed at 30 % on income and 20 percent on net realized capital gains. They have also accumulated losses from past unsuccessful investments that can be used to fully offset $100,000 of future realized gains.

In 10 years, Frank will receive a distribution from a family trust. His portion is now $1.2 million and is expected to grow prior to distribution. Frank receives no income from the trust and has no influence over, or responsibility for its management. T he Marconis know that these funds will change their financial situation materially but have excluded the trust from their financial planning.

At age 63 they retire and the distribution from Frank's family is paid to them.

Part I

1- Objectives & constrains of the investment portfolio:

Objectives (should be expressed in both terms return and risk tolerance) :

The Marconis seek for a capital appreciation and capital preservation due to the following:

A- Return term

The expectation of the Marconis’ long life (since both of them are in the early fifties) and the unspecified after retirement needs necessitate some assets appreciation over time in their investment portfolio to cover these needs .In addition they are in the consolidation phase where capital preservation is required too . The Marconis are willing to earn more than 75,000 USD after their retirement as minimum income in order preserve their present life style and to cover their future living expenses increased by the value of inflation that will occur in the future.

The Marconis want to exclude from their current portfolio their