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Finance Essay

2359 words - 10 pages

FINANCIAL INSTITUTIONS AND PORTFOLIO MANAGEMENT

FINANCIAL INSTITUTIONS AND PORTFOLIO MANAGEMENT

Introduction
The household has two sources of income namely the husband earning $100,000 per year as a middle level manager in a fortune 500 Company and the wife who is an attorney and also earns $100,000 per year. The couple has no children and as such they do not have expenses such as school fees, upbringing costs for the children. The couple is middle aged and as such their appetite to risk is relatively lower than their younger counterparts and relatively higher than their older counterparts.
This report shall therefore create an investment plan for the couple which shall include the ...view middle of the document...

In addition to this, they do not have children and as such they do not have recurrent expenditure on items such as schools, children upkeep expenses and other related costs. This indicates that they will not need to have constant flow of income from their portfolio in the short term giving it enough room to grow and generate enough income for their retirement (Tyson, 2009).
In light of the above, the couple should adopt an investment that seeks to maximize long term returns at a moderate level of risk. This shall help the couple seek the returns that shall help them generate enough income for their retirement. The portfolio generated shall be measured against a benchmark that will help the couple meet their returns and risk objective.
The portfolio should be stable and growth oriented in order to ensure that by the time the couple retires, they will have enough income to meet their retirement needs.
Portfolio selection
To help them achieve the investment goals set out above which are mainly centered on their retirement, they need to invest a well diversified portfolio that has along term outlook in terms of growth. As such the couple shall invest in one exchange traded fund that is pegged against the S&P 500 Index and the exchange traded fund selected for this purpose is the SPDR S&P 500 exchange traded fund, the couple shall then invest in one Exchange traded note to provide the portfolio with a source of risk reduction and constant flow of reliable income to help supplement the volatile of share prices and ETFs, the exchange traded note selected for this purpose is the UBS E-TRACS Long Platinum TR ETN, then the couple shall invest in four stocks that are high capitalization stocks in order to help the portfolio achieve the stability and growth required to generate enough income for the couple’s retirement (Brown and Reilly, 2011). The four stocks selected include;
Baidu Inc; this is a company listed in the NASDAQ Stock Exchange whose main line of business is to offer search platform in various languages which include Chinese language, Japanese Language among others. It is one of the largest companies in the Internet Information providers industry of the NASDAQ with a market capitalization of $42.55 billion as at 14th May 2012. The company was founded in the year 2000 and is headquartered in Beijing China (Yahoo finance, 2012a)
Dendreon Corporation; this is accompany that is listed under the Biotechnology industry of the NASDAQ Stock Exchange whose main line of business is the engaging in the discovery, development and commercialization of novel therapeutics to assist in the treatment of cancer patients. The company is one of the largest Biotechnology companies under the NASDAQ Stock Exchange with a market capitalization of $1.34 billion as at 14th May 2012. The company was founded in 1992 and its headquarters are in Seattle Washington (Yahoo finance, 2012b).
Apple Inc; this is a company listed under the Personal computers...

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