Case Problem 3.1 The Perezes’ Good Fortune 1. LG 2 2. LG 4 3. LG 6 Angel and Marie Perez own a small pool hall located in southern New Jersey. They enjoy running the business, which they have owned for nearly three years. Angel, a retired professional pool shooter, saved for nearly 10 years to buy this business, which he and his wife own free and clear. The income from the pool hall is adequate to allow Angel, Marie, and their children, Mary (age 10) and José (age 4), to live comfortably. Although he lacks formal education beyond the 10th grade, Angel has become an avid reader. He enjoys reading about current events and personal finance, particularly investing. He especially likes Money magazine, from which he has gained numerous ideas for better managing the family’s finances. Because of the long hours required to run the business, Angel can devote 3 to 4 hours a day (on the job) to reading. Recently Angel and Marie were notified that Marie’s uncle had died and left them a portfolio of stocks and bonds with a current market value of $300,000. They were elated to learn of their good fortune but decided it would be best not to change their lifestyle as a result of this inheritance. Instead, they want their newfound wealth to provide for their children’s college educations as well as their own retirement. They decided that, like their uncle, they would keep these funds invested in stocks and bonds. Angel felt that in view of this plan, he needed to acquaint himself with the securities currently in the portfolio. He knew that to manage the portfolio himself, he would have to stay abreast of the securities markets as well as the economy in general. He also realized that he would need to follow each security in the portfolio and continuously evaluate possible alternative securities that could be substituted as conditions warranted. Because Angel enjoyed using his spare time to follow the market, he strongly believed that with proper information, he could manage the portfolio. Given the amount of money involved, Angel was not too concerned with the information costs; rather, he wanted the best information he could get at a reasonable price. Questions a. Explain what role the Wall Street Journal and/or Barron’s might play in meeting Angel’s needs. What other general sources of economic and current event information would you recommend to Angel? Explain. b. How might Angel be able to use the services of Standard & Poor’s Corporation, Mergent, and the Value Line Investment Survey to learn about the securities in the portfolio? Indicate which, if any, of these services you would recommend, and why. c. Recommend some specific online investment information sources and tools to help Angel and Marie manage their investments. d. Explain to Angel the need to find a good stockbroker and the role the stockbroker could play in providing information and advice. Should he consider hiring a financial advisor to manage the portfolio? e. Give Angel a summary prescri ...

1. Case Problem 3.1 The Perezes’ Good Fortune
1. LG 2
2. LG 4
3. LG 6
Angel and Marie Perez own a small pool hall located in
southern New Jersey. They enjoy running the business, which
they have owned for nearly three years. Angel, a retired
professional pool shooter, saved for nearly 10 years to buy this
business, which he and his wife own free and clear. The income
from the pool hall is adequate to allow Angel, Marie, and their
children, Mary (age 10) and José (age 4), to live comfortably.
Although he lacks formal education beyond the 10th grade,
Angel has become an avid reader. He enjoys reading about
current events and personal finance, particularly investing. He
especially likes Money magazine, from which he has gained
numerous ideas for better managing the family’s finances.
Because of the long hours required to run the business, Angel
can devote 3 to 4 hours a day (on the job) to reading.
Recently Angel and Marie were notified that Marie’s uncle had
died and left them a portfolio of stocks and bonds with a current
market value of $300,000. They were elated to learn of their
good fortune but decided it would be best not to change their
lifestyle as a result of this inheritance. Instead, they want their
newfound wealth to provide for their children’s college
educations as well as their own retirement. They decided that,
like their uncle, they would keep these funds invested in stocks
and bonds.
Angel felt that in view of this plan, he needed to acquaint
himself with the securities currently in the portfolio. He knew
that to manage the portfolio himself, he would have to stay
abreast of the securities markets as well as the economy in
general. He also realized that he would need to follow each
security in the portfolio and continuously evaluate possible
alternative securities that could be substituted as conditions

2. warranted. Because Angel enjoyed using his spare time to
follow the market, he strongly believed that with proper
information, he could manage the portfolio. Given the amount
of money involved, Angel was not too concerned with the
information costs; rather, he wanted the best information he
could get at a reasonable price.
Questions
a. Explain what role the Wall Street
Journal and/or Barron’s might play in meeting Angel’s needs.
What other general sources of economic and current event
information would you recommend to Angel? Explain.
b. How might Angel be able to use the services of Standard &
Poor’s Corporation, Mergent, and the Value Line Investment
Survey to learn about the securities in the portfolio? Indicate
which, if any, of these services you would recommend, and
why.
c. Recommend some specific online investment information
sources and tools to help Angel and Marie manage their
investments.
d. Explain to Angel the need to find a good stockbroker and the
role the stockbroker could play in providing information and
advice. Should he consider hiring a financial advisor to manage
the portfolio?
e. Give Angel a summary prescription for obtaining information
and advice that will help to ensure the preservation and growth
of the family’s newfound wealth.
The Blackville-Hilda Schools superintendent received a raise
and an extension of his contract Monday, Jan. 8 from the
District 19 School Board.
At their regular meeting the board voted to give Dr. Shawn
Johnson an $8,000 annual raise and extended his contract until
2020.
Board member Sharon McClary made the motion which was
approved unanimously by the board members in attendance

3. including Carroll Priester, Ethel Faust and Bill DeLoach. Karen
Jowers was not at the meeting.
Later in the meeting Bill DeLoach thanked Dr. Johnson saying,
“I strongly feel we are moving in the right direction.”
Johnson, in turn, gave credit to his “great staff”. He also
congratulated the principals at all the schools for their
achievement growth over the last year.
Following the vote the superintendent passed out packets of
appreciation from the schools to the board members in
recognition of School Board Appreciation Month.
Prior to the public meeting the board had met in closed session
for 90 minutes to discuss multiple topics including student
placement, legal, contractual matters, personnel, transfers and
the audit report.
In open session the board approved the audit as presented by
Jim McGuire of the accounting firm C.C. McGregor.
McGuire said they had “issued an unqualified opinion” and the
audit was reviewed “fairly and consistently with prior years.”
He said a copy of the audit had already been sent to the S.C.
Department of Education.
The vote to accept the audit as presented was unanimous.
A complete article about the audit will be published in next
week’s Jan. 24 edition.
During her financial report, Interim Finance Director
LaPrecious Rivers said there had been no credit card activity or
board travel to report.
Turning to schedules, the board approved a tentative 2018-19
District Calendar.
Dr. Johnson said he had met with the superintendents of
Districts 29 and 45 as well as the Career Center and all had
concurred on the county-wide calendar.
He said the only difference between D19’s calendar with the
other districts was the dates for Spring Break. “Otherwise, it’s
pretty much the same,” said Dr. Johnson.
The calendar schedules teachers to return to school on Aug. 13
and students’ first day is Monday, Aug. 20. Winter holidays are

4. Dec. 20 through Jan. 3 although there is a teacher in-service day
on Jan. 4. Students return to class on Jan. 7. Spring break is
Friday, April 19 through Friday, April 26 with students
returning to class on April 29. Graduation for seniors is May 31
while all other students have a half day on Monday, June 3.
Teachers will have in-service through June 6.
During the meeting Dr. Johnson also asked for flexibility for
those teachers who were unable to get to work recently due to
the snow and ice on Jan. 4 and 5. “These teachers normally
don’t miss,” he said, but the weather made travel dangerous.
He asked that these teachers not be required to use their
vacation days as a result of the storm.
Chairman Carroll Priester said, “If it was verified they couldn’t
get out, I don’t see how we can use that against them.”
The other board members concurred.
Dr. Johnson also said letters of intent were being mailed out
Jan. 10 to teachers to get an idea of who plans to return in the
fall. “We want to get on our recruiting practices early this
year,” said Johnson.
Teachers have 10 days to return the forms.
In other business the board:
• Voted to approve the tribunal decision regarding the
placement of “Student A” due to the absence of the student
involved; and
• Accepted the resignation of Janice Neal as a bus driver.
The Blackville
-
Hilda Schools superintendent received a raise and an extension
of his contract
Monday, Jan. 8 from the District 19 School Board.
At their regular meeting the board voted to give Dr. Shawn
Johnson an $8,000 annual raise and
extended his

5. contract until 2020.
Board member Sharon McClary made the motion which was
approved unanimously by the board
members in attendance including Carroll Priester, Ethel Faust
and Bill DeLoach. Karen Jowers was
not at the meeting.
Later in the meeting Bill DeLo
ach thanked Dr. Johnson saying, “I strongly feel we are moving
in the
right direction.”
Johnson, in turn, gave credit to his “great staff”. He also
congratulated the principals at all the
schools for their achievement growth over the last year.
Following t
he vote the superintendent passed out packets of appreciation
from the schools to the
board members in recognition of School Board Appreciation
Month.
Prior to the public meeting the board had met in closed session
for 90 minutes to discuss multiple
topics
including student placement, legal, contractual matters,
personnel, transfers and the audit
report.
In open session the board approved the audit as presented by
Jim McGuire of the accounting firm
C.C. McGregor.
McGuire said they had “issued an unqualified

6. opinion” and the audit was reviewed “fairly and
consistently with prior years.”
He said a copy of the audit had already been sent to the S.C.
Department of Education.
The vote to accept the audit as presented was unanimous.
A complete article about the au
dit will be published in next week’s Jan. 24 edition.
During her financial report, Interim Finance Director
LaPrecious Rivers said there had been no credit
card activity or board travel to report.
Turning to schedules, the board approved a tentative 2018
-
1
9 District Calendar.
Dr. Johnson said he had met with the superintendents of
Districts 29 and 45 as well as the Career
Center and all had concurred on the county
-
wide calendar.
He said the only difference between D19’s calendar with the
other districts was
the dates for Spring
Break. “Otherwise, it’s pretty much the same,” said Dr.
Johnson.
The calendar schedules teachers to return to school on Aug. 13
and students’ first day is Monday,

7. Aug. 20. Winter holidays are Dec. 20 through Jan. 3 although
there is a
teacher in
-
service day on
Jan. 4. Students return to class on Jan. 7. Spring break is
Friday, April 19 through Friday, April 26
with students returning to class on April 29. Graduation for
seniors is May 31 while all other students
have a half day on Mond
ay, June 3. Teachers will have in
-
service through June 6.
During the meeting Dr. Johnson also asked for flexibility for
those teachers who were unable to get
to work recently due to the snow and ice on Jan. 4 and 5.
“These teachers normally don’t miss,” he
said, but the weather made travel dangerous.
He asked that these teachers not be required to use their
vacation days as a result of the storm.
Chairman Carroll Priester said, “If it was verified they couldn’t
get out, I don’t see how we can use
that again
st them.”
The Blackville-Hilda Schools superintendent received a raise
and an extension of his contract
Monday, Jan. 8 from the District 19 School Board.
At their regular meeting the board voted to give Dr. Shawn
Johnson an $8,000 annual raise and
extended his contract until 2020.

8. Board member Sharon McClary made the motion which was
approved unanimously by the board
members in attendance including Carroll Priester, Ethel Faust
and Bill DeLoach. Karen Jowers was
not at the meeting.
Later in the meeting Bill DeLoach thanked Dr. Johnson saying,
“I strongly feel we are moving in the
right direction.”
Johnson, in turn, gave credit to his “great staff”. He also
congratulated the principals at all the
schools for their achievement growth over the last year.
Following the vote the superintendent passed out packets of
appreciation from the schools to the
board members in recognition of School Board Appreciation
Month.
Prior to the public meeting the board had met in closed session
for 90 minutes to discuss multiple
topics including student placement, legal, contractual matters,
personnel, transfers and the audit
report.
In open session the board approved the audit as presented by
Jim McGuire of the accounting firm
C.C. McGregor.
McGuire said they had “issued an unqualified opinion” and the
audit was reviewed “fairly and
consistently with prior years.”
He said a copy of the audit had already been sent to the S.C.
Department of Education.
The vote to accept the audit as presented was unanimous.
A complete article about the audit will be published in next
week’s Jan. 24 edition.
During her financial report, Interim Finance Director
LaPrecious Rivers said there had been no credit
card activity or board travel to report.
Turning to schedules, the board approved a tentative 2018-19
District Calendar.

9. Dr. Johnson said he had met with the superintendents of
Districts 29 and 45 as well as the Career
Center and all had concurred on the county-wide calendar.
He said the only difference between D19’s calendar with the
other districts was the dates for Spring
Break. “Otherwise, it’s pretty much the same,” said Dr.
Johnson.
The calendar schedules teachers to return to school on Aug. 13
and students’ first day is Monday,
Aug. 20. Winter holidays are Dec. 20 through Jan. 3 although
there is a teacher in-service day on
Jan. 4. Students return to class on Jan. 7. Spring break is
Friday, April 19 through Friday, April 26
with students returning to class on April 29. Graduation for
seniors is May 31 while all other students
have a half day on Monday, June 3. Teachers will have in-
service through June 6.
During the meeting Dr. Johnson also asked for flexibility for
those teachers who were unable to get
to work recently due to the snow and ice on Jan. 4 and 5.
“These teachers normally don’t miss,” he
said, but the weather made travel dangerous.
He asked that these teachers not be required to use their
vacation days as a result of the storm.
Chairman Carroll Priester said, “If it was verified they couldn’t
get out, I don’t see how we can use
that against them.”
Case Problem 12.1 Reverend Mark Thomas Ponders Mutual
Funds
1. LG 3
2. LG 5
The Reverend Mark Thomas is the minister of a church in the
San Diego area. He is married, has one young child, and earns a
“modest income.” Because religious organizations are not
notorious for their generous retirement programs, the reverend

10. has decided he should do some investing on his own. He would
like to set up a program that enables him to supplement the
church’s retirement program and at the same time provide some
funds for his child’s college education (which is still some 12
years away). He is not out to break any investment records but
wants some backup to provide for the long-run needs of his
family.
Although he has a modest income, Mark Thomas believes that
with careful planning, he can probably invest about $250 a
quarter (and, with luck, increase this amount over time). He
currently has about $15,000 in a savings account that he would
be willing to use to begin this program. In view of his
investment objectives, he is not interested in taking a lot of
risk. Because his knowledge of investments extends to savings
accounts, Series EE savings bonds, and a little bit about mutual
funds, he approaches you for some investment advice.
Questions
a. In light of Mark’s long-term investment goals, do you think
mutual funds are an appropriate investment vehicle for him?
b. Do you think he should use his $15,000 savings to start a
mutual fund investment program?
c. What type of mutual fund investment program would you set
up for the reverend? Include in your answer some discussion of
the types of funds you would consider, the investment
objectives you would set, and any investment services (e.g.,
withdrawal plans) you would seek. Would taxes be an important
consideration in your investment advice? Explain.
Case Problem 2.2 Ravi Dumar’s High-Flying Margin Account
1. LG 6
Ravi Dumar is a stockbroker who lives with his wife, Sasha, and
their five children in Milwaukee, Wisconsin. Ravi firmly
believes that the only way to make money in the market is to
follow an aggressive investment posture—for example, to use
margin trading. In fact, Ravi has built himself a substantial

11. margin account over the years. He currently holds $75,000
worth of stock in his margin account, though the debit balance
in the account amounts to only $30,000. Recently Ravi
uncovered a stock that, on the basis of extensive analysis, he
feels is about to take off. The stock, Running Shoes (RS),
currently trades at $20 per share. Ravi feels it should soar to at
least $50 within a year. RS pays no dividends, the prevailing
initial margin requirement is 50%, and margin loans are now
carrying an annual interest charge of 10%. Because Ravi feels
so strongly about RS, he wants to do some pyramiding by using
his margin account to purchase 1,000 shares of the stock.
Questions
a. Discuss the concept of pyramiding as it applies to this
investment situation.
b. What is the present margin position (in percent) of Ravi’s
account?
c. Ravi buys the 1,000 shares of RS through his margin account
(bear in mind that this is a $20,000 transaction).
1. What will the margin position of the account be after the RS
transaction if Ravi follows the prevailing initial margin (50%)
and uses $10,000 of his money to buy the stock?
2. What if he uses only $2,500 equity and obtains a margin loan
for the balance ($17,500)?
3. How do you explain the fact that the stock can be purchased
with only 12.5% margin when the prevailing initial margin
requirement is 50%?
d. Assume that Ravi buys 1,000 shares of RS stock at $20 per
share with a minimum cash investment of $2,500 and that the
stock does take off and its price rises to $40 per share in one
year.
1. What is the return on invested capital for this transaction?
2. What return would Ravi have earned if he had bought the
stock without margin—that is, if he had used all his own
money?
e. What do you think of Ravi’s idea to pyramid? What are the
risks and rewards of this strategy?

12. Case Problem 2.1 Dara’s Dilemma: What to Buy?
1. LG 6
Dara Simmons, a 40-year-old financial analyst and divorced
mother of two teenage children, considers herself a savvy
investor. She has increased her investment portfolio
considerably over the past five years. Although she has been
fairly conservative with her investments, she now feels more
confident in her investment knowledge and would like to branch
out into some new areas that could bring higher returns. She has
between $20,000 and $25,000 to invest.
Attracted to the hot market for technology stocks, Dara was
interested in purchasing a tech IPO stock and
identified NewestHighTech.com, a company that makes
sophisticated computer chips for wireless Internet connections,
as a likely prospect. The 1-year-old company had received some
favorable press when it got early-stage financing and again
when its chip was accepted by a major cell phone manufacturer.
Dara also was considering an investment in 400 shares of
Casinos International common stock, currently selling for $54
per share. After a discussion with a friend who is an economist
with a major commercial bank, Dara believes that the long-
running bull market is due to cool off and that economic
activity will slow down. With the aid of her stockbroker, Dara
researches Casinos International’s current financial situation
and finds that the future success of the company may hinge on
the outcome of pending court proceedings on the firm’s
application to open a new floating casino on a nearby river. If
the permit is granted, it seems likely that the firm’s stock will
experience a rapid increase in value, regardless of economic
conditions. On the other hand, if the company fails to get the
permit, the falling stock price will make it a good candidate for
a short sale.
Dara felt that the following alternatives were open to her:
· Alternative 1: Invest $20,000 in NewestHighTech.com when

13. it goes public.
· Alternative 2: Buy Casinos International now at $54 per
share and follow the company closely.
· Alternative 3: Sell Casinos short at $54 in anticipation that
the company’s fortunes will change for the worse.
· Alternative 4: Wait to see what happens with the casino
permit and then decide whether to buy or short sell the Casinos
International stock.
Questions
a. Evaluate each of these alternatives. On the basis of the
limited information presented, recommend the one you feel is
best.
b. If Casinos International’s stock price rises to $60, what will
happen under alternatives 2 and 3? Evaluate the pros and cons
of these outcomes.
c. If the stock price drops to $45, what will happen under
alternatives 2 and 3? Evaluate the pros and cons of these
outcomes.
Case Problem 1.2 Preparing Carolyn Bowen’s Investment Plan
LG 4
LG 5
Carolyn Bowen, who just turned 55, is employed as an
administrative assistant for the Xcon Corporation, where she
has worked for the past 20 years. She is in good health, lives
alone, and has two grown children. A few months ago her
husband died, leaving her with only their home and the proceeds
from a $75,000 life insurance policy. After she paid medical
and funeral expenses, $60,000 of the life insurance proceeds
remained. In addition to the life insurance proceeds, Carolyn
has $37,500 in a savings account, which she had accumulated
over the past 10 years. Recognizing that she is within 10 years

14. of retirement, Carolyn wishes to invest her limited resources so
she will be able to live comfortably once she retires. Carolyn is
quite superstitious. After consulting with a number of psychics
and studying her family tree, she is certain she will not live past
80. She plans to retire at either 62 or 65, whichever will allow
her to meet her long-run financial goals. After talking with a
number of knowledgeable individuals—including, of course, the
psychics—Carolyn estimates that to live comfortably in
retirement, she will need $45,000 per year before taxes. This
amount will be required annually for 18 years if she retires at
62 or for 15 years if she retires at 65. As part of her financial
plan, Carolyn intends to sell her home at retirement and rent an
apartment. She has estimated that she will net $112,500 if she
sells the house when she is 62 and $127,500 if she sells it when
she is 65. Carolyn has no financial dependents and is not
concerned about leaving a sizable estate to her heirs. If Carolyn
retires at age 62, she will receive from Social Security and an
employer-sponsored pension plan a total of $1,359 per month
($16,308 annually); if she waits until age 65 to retire, her total
retirement income will be $1,688 per month ($20,256 annually).
For convenience, Carolyn has already decided to convert all her
assets at the time of retirement into a stream of annual income
and she will at that time purchase an annuity by paying a single
premium. The annuity will have a life just equal to the number
of years remaining until her 80th birthday. If Carolyn retires at
age 62 and buys an annuity at that time, for each $1,000 that she
puts into the annuity she will receive an annual benefit equal to
$79 for the subsequent 18 years. If she waits until age 65 to
retire, each $1,000 invested in the annuity will produce an
annual benefit of $89.94 for the 15 years. Carolyn plans to place
any funds currently available into a savings account paying 6%
compounded annually until retirement. She does not expect to
be able to save or invest any additional funds between now and
retirement. For every dollar that Carolyn invests today, she will
have $1.50 by age 62; if she leaves the money invested until age
65, she will have $1.79 for each dollar invested today.

15. Questions
a) Assume that Carolyn places currently available funds in the
savings account. Determine the amount of money Carolyn will
have available at retirement once she sells her house if she
retires at (1) age 62 and (2) age 65
b) Using the results from item a, determine the level of annual
income that will be provided to Carolyn through purchase of an
annuity at (1) age 62 and (2) age 65
c) With the results found in the preceding questions, determine
the total annual retirement income Carolyn will have if she
retires at (1) age 62 and (2) age 65
d) From your findings, do you think Carolyn will be able to
achieve her long-run financial goal by retiring at (1) age 62 or
(2) age 65? Explain
e) Evaluate Carolyn’s investment plan in terms of her use of a
savings account and an annuity rather than other investments.
Comment on the risk and return characteristics of her plan.
What recommendations might you offer Carolyn? Be specific.