Rasmussen College Characteristics and Risks of Different Investment Vehicles Paper

Competency:

Appraise the characteristics and risks of different investment vehicles.

Scenario:

Now that your family is growing, you and your spouse are looking towards the future and considering adding additional long-term investments to your financial plan. Be sure to complete all three parts below.

Deliverable 04 Spreadsheet

Part One:

In the Excel file provided, compute the following:

1. Savings:

• You will place $5,000 into a savings account that pays 1% compounded yearly. Calculate the compounded yearly interest up to 10 years, 20 years and 30 years.

Stocks:

• You will place $5,000 into a mutual fund for stocks. Calculate the compounded yearly interest rates beginning with 10 years at 11%, the next 10 years at 14% and the final 10 years at 8%.

Bonds:

• You will place $5,000 into bonds. Calculate the compounded yearly interest rates beginning at 10 years at 2.4%, the next 10 years at 2.1% and the final 10 years at 3.1%.

1. How much will you have after 30 years in each account?
2. Based on your personal risk tolerance, which of these would you prefer and why?

Show your calculations in Excel. You should not use a calculator. Note, calculating compound interest in this scenario will be to simply add the interest earned that year into your initial deposit and calculate the next year’s interest rate on the new total.

Part Two:

You are now employed as the managing editor of a well-known business journal. Although you thoroughly enjoy your job and the people you’re with, what you would really like to do is open a bookstore of your own. You would like to open your store in about eight years and figure you’ll need about $50,000 in capital to do so. Given that you think you can make about 10 percent on your money, use the spreadsheet provided and answer the following questions:

1. How much would you have to invest today, in one lump sum, to end up with $50,000 in eight years?
2. If you are starting from scratch, how much would you have to put away annually to accumulate the needed capital in eight years?
3. If you already have $10,000 saved away, how much would you have to put away annually to accumulate the required capital in eight years?
4. Given that you have an idea of how much you need to save, explain how you could use an investment plan to help reach your objective.

Part Three:

Imagine that you’ve just inherited $40,000 from a relative. Now you’re faced with the problem of deciding how to spend it. You could make a down payment on a home – or better yet, on that BMW that you’ve always wanted. Or you could spend your windfall more profitably by building a mutual fund portfolio. Let’s say that, after a lot of soul-searching, you decide to build one. Your task is to develop a $40,000 mutual fund portfolio. In a Word document, answer the following:

1. Use actual funds and actual quoted prices (list them and give dates), invest as much of the $40,000 as you possibly can. Explain the portfolio that you end up with, including the investment objectives that you’re trying to achieve.

1. Now assume that you have just inherited $100,000 and wish to use all or part of it to make a real estate investment. Would you invest directly in real estate, or indirectly through something like a REIT? Explain.

1. Having investigated different investment options, how would you construct your portfolio? For example, what portion of your investment will be in stocks? In bonds? In real estate? Explain.

You will need to submit the Excel template and a Word document for this deliverable. Put both files into a zip file saved as your initial and last name (a_student.zip) and attach it to the submission box below.