1. Complete Worksheet in Focus on Personal Finance, "Your Financial Plan - Evaluating Corporate Bonds," using the Mergent Bond Viewer database (You can find this database in the Library Tab. Go to the University Library, and then click "View All Resources Alphabetically." You will find the Mergent Bond Viewer database there.) or other reliable source for Apple Inc's bond maturing in 05/13/2045.
2. Explain the principle of asset allocation. Using the Internet or library research, prepare a 2-minute presentation describing why the principle of asset allocation is important when establishing an investment program.
3. Assume you are 59 years old, want to retire in 6 years, and currently have an investment portfolio valued at $550,000 invested in technology stocks. After talking with friends and relatives, you have decided that you have "too many eggs in one basket." Based on this information, use the asset allocation method described in this chapter and use the following table to diversify your investment portfolio. Then answer the following two questions:
o What are the advantages of asset allocation?
o How could the time your investments have to work for you and your age affect your asset allocation?
What is the recommended asset allocation for this 59 year old person? (Show in the chart below.)
|
Investment Category
(Asset Class)
|
% Allocated
|
Comments: What is this asset class expected to contribute to the portfolio? (i.e.: growth, income, safety, diversification, etc.)
|
|
Large-cap stocks
|
|
|
|
Mid-cap stocks
|
|
|
|
Small-cap stocks
|
|
|
|
Foreign stocks
|
|
|
|
Government bonds
|
|
|
|
Corporate bonds
|
|
|
|
Cash
|
|
|
|
Other investments (specific types e.g. real estate)
|
|
|
|
Total Allocation (must = 100%)
|
|
|
Evaluating Corporate Bonds
Purpose: To determine if a specific corporate bond can help you attain your financial goals.
Instructions: No checklist can serve as a foolproof guide for choosing a corporate bond. However, the following questions will help you evaluate a potential bond investment.
Category 1: Information about the Corporation
1. What is the corporation's name, address and phone number?
2. What types of products or services does this firm provide ?
3. Briefly describe the prospects for this company. (Include significant factors like product development, plans for expansion, plans for mergers, etc.)
Category 2: Bond Basics
4. What type of bond is this?
5. What is the face value for this bond?
6. What is the interest rate for this bond?
7. What is the dollar amount of annual interest for this bond?
8. When are interest payments made to bondholders?
9. Is the corporation currently paying interest as scheduled?
10. What is the maturity date for this bond?
11. What is Moody's rating for this bond?
12. What is Standard & Poor's rating for this bond?
13. What do these ratings mean?
14. What was the original issue date?
15. Who is the trustee for this bond issue?
16. Is the bond callable? If so, when?
17. Is the bond secured with collateral? If so, what?
Category 3: Financial Performance
18. What are the firm's earnings per share for the last year?
19. Have the firm's earnings increased over the past five years?
20. What are the firm's projected earnings for the next year?
21. Does your analysis indicate that this is a good idea to invest in this company? Why or why not?
22. Briefly describe any other information that you obtained from Moody's, Standard & Poor's, or other source of information.
A Word of Caution
The above checklist is not a cure-all, but it does provide some very sound questions that you should answer before making a decision to invest in bonds. If you need other information, you are responsible for obtaining it and for determining how it affects your potential investment.