Assignment 2: Kristin Decides to Try Her Hand at Investing
Kristin Earhardt is a 26-year-old management trainee at a large chemical company. She is single and has no plans for marriage. Her annual salary is $34,000 (placing her in the 15% tax bracket), and her monthly expenditures come to approximately $1,500. During the past year or so, Kristin has managed to save around $8,000, and she expects to continue saving at least that amount each year for the foreseeable future. Her company pays the premium on her $35,000 life insurance policy. Because Kristin's entire education was financed by ...view middle of the document...
If she decides to invest in bonds, Kristin has then decided that she wants to loan her money out. Some examples of things that she could loan her money out to are the government or a corporation. Bonds are set at a certain interest rate when they are issued, and the person borrowing the money from you promises to pay the initial amount of the bond back plus the interest rate that has been set. Bonds eventually mature, they aren’t an ongoing thing. Therefore, when it comes to the time of maturity, Kristin will then be able to collect her money from them, and then what she earned as interest.
2. Discuss the likelihood of Kristin earning a satisfactory return if she invests her $15,000
in (a) blue-chip stocks, (b) growth stocks, (c) speculative stocks, (d) corporate bonds, or
(e) municipal bonds
(a) Blue-chip stocks are very quality stocks as well as reliable stocks. The are stocks that are good to have in both good times and bad. Some examples of these stocks include Wal-Mart and AT&T. With these examples, I can tell you that people are always going to shop at Wal-Mart, as well as buy phones from AT&T and have a cell phone plan. People simply can’t live without these things, even in hard times. If Kristin researched blue-chip stocks, and figured out which ones should would want her money to go into, I think she would be happy with the returns in the end.
(b) As far as growth stocks, Kristin would have to make sure that she invested in the right ones as well. Just because a lot of things on the stock market have failed, doesn’t mean that everything has dropped significantly and things are continuing to grow. However, growth stocks don’t necessarily pay huge dividends in the long run, so if Kristin is looking for larger returns, I wouldn’t recommend growth stocks.
( c) A speculative stock is a very high risk stock and the returns on them aren’t usually high or even in the positive. If Kristin really wanted to be smart about investing, I wouldn’t advise her in putting her money into this because of the risk and she is more than likely not going to get a huge return on this.
(d) Corporate bonds are mainly for businesses trying to raise money to expand their business. Usually corporate bonds are a lot safer than those of common stocks, and it pays a...