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8 September, 13:34

Both a wife and her husband work in the airline industry. They are in their 40s and they have a high tax bracket and are concerned about their after tax rate of return. A meeting with their financial planner reveals they are primarily focused on long term capital gains and they will need at least a 9% to 11% average rate of return to meet their retirement goals. They desire a diversified portfolio and liquidity is not currently a major concern. If you had to choose from the list below which of the following asset allocations seems to best fit their situation? a. 10% money market; 40% long term bonds; 10% commodities; 40% high dividend paying stocksb. 0% money market; 60% long term bonds; 40% stocksc. 10% money market; 30% long term bonds; 10% commodities; 50% high dividend paying stocksd. 5% money market; 30% long term bonds; 5% commodities; 60% stocks, most with low dividends and high growth prospects

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  1. 8 September, 13:35
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    Answer: % money market; 30% long-term bonds; 5% commodities; 60% stocks, most with low dividends and high growth prospects (option D)

    Explanation:

    Since liquidity is not currently a major concern to the couple, investment in the money market can be low and also no investment is needed in the high dividend paying stocks.

    Option A and C involve significant investment in the high dividend yielding stocks so they're ruled out. We are now left with Option B and D

    Long term bonds usually pay less than the required rate that this couple is considering, therefore a significant amount must be invested in high yield return securities. This will make option D the right answer since it fulfils all the required objectives.
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