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Please answer the following:

1. Please construct an investment portfolio that is appropriate for your client:

She is 60 years old and plans to retire within 5 years.

She has $4 million to invest. She is primarily interested in creating steady income from the portfolio.

Her goal is $120,000 per year. She is also concerned about inflation and therefore wants the portfolio value and income to keep pace with inflation.

Assume annual inflation of 3%. The portfolio must be diversified with stocks, bonds, cash, etc. She is willing to assume a moderate level of risk.

Her target allocation is 50% ,10% non-USA stocks, 30% fixed income, 10% other (preferreds, real estate, etc.).

You must consider stock market risk and bond risk (e.g. duration):

Please include the beta for each stock and/or stock fund. Please include duration for each bond and/or bond fund.

All securities must be publicly traded securities. Mutual funds and ETFs must have at least a 5 year track record.

Please show actual performance of portfolio for last 5 years.

Please show the allocation and annual income for each investment position in the portfolio.

Please include the following 3 "stress tests": 10% decline in S&P 500 index, no change in interest rates (client portfolio can't exceed 6% loss). 20% decline in S&P 500 index, no change in interest rates (client portoflio can't exceed 12% loss).

40% decline in S&P 500 index, no change in interest rates (client portoflio can't exceed 18% loss).

0% decline in S&P 500 index and a 3% increase in interest rates (client portfolio can't exceed 5% loss) Assuming future performance is the same as the average annual performance for the last 5 years, what will be the value of the portfolio at the end of 5 years if the client withdrawls $120,000 in the 1st year and then increases the withdrawl amount by 3% each year for the next 4 years.

Here are a few helpful suggestions:

Performance (Stress Tests) need to include a securities level analysis.

For example, each stock, bond or fund should be tested against its' respective Beta or Duration. If you are including bond funds in your portfolio, you can easily get the Duration on the fund managers website. If you are using CDs and/or individual bonds in the portfolio, you can assume the Duration is equal to the maturity date. Remember, that your client wants the value of the portfolio to keep pace with inflation. This is why you should only use securities that have a track record of at least 5 years. You can assume that the future performance of the portfolio will be equal to the past performance.

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