Team Project

Introduction

An investment is described as a commitment of current resources in the expectation of deriving greater resources in the future (Bodie, Kane & Marcus, 2013, p.2). There are three broad types of financial assets that can be used in the investment process. The first are debt or fixed-income securities which pay either a fixed stream of income or income that is determined according to a specific formula (Bodie, Kane & Marcus, 2013, p.5). The second type of financial asset is equity which represents an ownership share in a corporation and the final assets are derivative securities which provide payoffs that depend on the values of other assets (Bodie, Kane & Marcus, 2013, p.5).

The choice of financial assets depends on the degree of risk aversion that an investor has. The Masons are risk averse investors who have one million dollars to invest and require sixty five thousand dollars of withdrawals from the investment, funding for their six grandchildren’s education that will total forty thousand dollars annually and an annual scholarship of five thousand dollars. In addition the Masons require at least three types of investments that will minimize income tax obligations. An analysis of the Masons investment objectives, constraints as well as an investment policy and profile follow below.

Investment Objectives

Return Requirement:

Mr. Mason is nearing retirement and the level of risk tolerance seems to diminish. Mr. Mason’s attitudes have shifted from risk tolerance towards risk aversion as he nears retirement (Bodie, Kane & Marcus, 2013). This objective is easily satisfied with investing the original payment of $1 million from ACS to provide a moderate level of income. The combination of Dr. Mason’s income $55,000 per year and social security benefits of $1,800 per month will provide a sufficient retirement income. Because of the large cash payments from ACS, the Mason’s will have a substantial financial base to focus on other objectives, specifically, for their grandchildren’s education and $5,000 scholarship funds per year by a selected electrical engineer student. Both objectives suggest a retirement portfolio seeking long-term capital appreciation. Given the size of asset, lends itself to a growth-oriented posture with a secondary emphasis on current income. The pension funds contribute to a savings account established by the firm for the employees, which will provide a yearly amount of 2% of the employee’s final salary for each year (Bodie, Kane & Marcus, 2013). The Endowment fund purpose is to gift, typically, by educational contributions. The life insurance company specialized in annuities will provide a steady income and annual growth with rates as low as 4% to 5% per year.

a. Pension