Bob's Burger Buns, Inc. is installing a brand new defined benefit pension plan. Bob is age 55 and will retire at age 65. The next oldest employee is age 35 and will retire in 30 years. Bob has a low risk tolerance. The average tenure of the rank-and-file employees is three years.Examine each of the following portfolios and decide which of the three would be the best choice to fund the plan. Justify your response in terms of the owner's risk tolerance level, inflation protection level, UBTI concerns, and compliance with ERISA diversification requirements:Portfolio 1: 70% invested in U.S. government Treasury securities with various maturities; 20% invested in a municipal bond fund; and 10% invested in a money market fund invested un U.S> Treasury bills.Portfolio 2: 40% invested in an aggressive growth mutual fund; 20% invested in certificates of deposit; 20% invested in financial futures; and 20% invested in a gold and other precious metals mutual fund.Portfolio 3: 40% invested in a balanced stock mutual fund; 30% invested in a guaranteed income contract with a two-year guarantee; 20% invested in an income stock fund; and 10% invested in a money market fund.

Considering all the above three portfolios with parameters on Risk tolerance Inflation protection…

Answered: Examine each of the following…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter14: Planning For Retirement

Section: Chapter Questions

Problem 2FPE

See similar textbooks

Related questions

Concept explainers

Question

100%

Bob's Burger Buns, Inc. is installing a brand new defined benefit pension plan. Bob is age 55 and will retire at age 65. The next oldest employee is age 35 and will retire in 30 years. Bob has a low risk tolerance. The average tenure of the rank-and-file employees is three years.

Examine each of the following portfolios and decide which of the three would be the best choice to fund the plan. Justify your response in terms of the owner's risk tolerance level, inflation protection level, UBTI concerns, and compliance with ERISA diversification requirements:

Portfolio 1: 70% invested in U.S. government Treasury securities with various maturities; 20% invested in a municipal bond fund; and 10% invested in a money market fund invested un U.S> Treasury bills.

Portfolio 2: 40% invested in an aggressive growth mutual fund; 20% invested in certificates of deposit; 20% invested in financial futures; and 20% invested in a gold and other precious metals mutual fund.

Portfolio 3: 40% invested in a balanced stock mutual fund; 30% invested in a guaranteed income contract with a two-year guarantee; 20% invested in an income stock fund; and 10% invested in a money market fund.

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.