The purpose of this assignment is to help you begin to learn the world of the investment literature. In doing this you will learn a little about making investments and a lot about the investment sources themselves.

INSTRUCTIONS:

You and your retired grandparents have just come into a little money. You want to invest your money in long-term capital growth opportunities that are somewhat safe and only slightly speculative. Your grandparents also want you to invest their money but because of their age and the fact that they need an immediate regular retirement income you need to be fairly conservative in your choices of investments.

You now need to make the decisions about these investments. To help you out, I have decided that none of the money should go into IRA's, money-market funds or real estate. Instead, it should all go into stocks, bonds, options, or mutual funds. However, there should be at least one bond in one (or both, if you prefer) of the portfolios. You should invest in at least a total of 10 companies (across both portfolios) so as to hedge your investments. No more than one mutual fund may be purchased for each portfolio. You have about $l5,000 for you and $l5,000 for your grandparents.

Prepare two separate portfolios: one for you and one for your grandparents. Ignore broker fees for now. Cite all sources used. It is OK to insert (using cut and paste) copies of tables, commentary, etc. from published sources. Each portfolio should have a specific objective or set of objectives (e.g., growth, income, speculative, etc.).

Make your choices! Once they have been made, prepare a justification for each company. The justifications for each company should include at least the following:

(l) Written rationale for selecting this company for an investment. Specify the central objective for this investment.
(2) The type of business the company is involved in, its financial status, growth potential and so forth.
(3) P/E ratio and other appropriate qualitative and quantitative measures.
(4) How the stock, bond or mutual fund has done over the past 5 years or so.
(5) Purchase price of the stock, bond or mutual fund (and date purchased); if a bond: its face value, interest rate, maturity, rating, etc.
(6) Calculate the total actual--or expected--annual income from dividends or interest, if any, for each company in the portfolios. Place this information with the other information about each company as well as in the summary (see below).

Finally, for each portfolio, tally the actual--or expected--annual income that you will receive in the form of interest or dividends and state it in terms of a yield for the portfolio. Then, write a brief statement as to how the capitals gains appreciation (or growth) for the stocks or mutual fund in your portfolio have performed for the past 5 years or so. You may do this individually for each stock/mutual fund/bond or calculate some weighted average for the entire portfolio. Then, compare those growth rates with the S&P 500 index, the DJI, the Lipper mutual fund index, or some other index that you feel is more specific to your investment portfolio objectives (such as the Russell 2000 index) for the past 5 years or so. Make appropriate comments on why your portfolio is better or worse than these broad market indices.

Well, almost finally:

If you feel that you already have a good knowledge of the investments process and you want to do something different than this one, then talk to me ASAP. The central objective of this portfolio assignment is for you get to know the traditional investments literature that you would find in most medium-sized and large public and academic libraries. Therefore, the alternative you propose to me should guarantee that you will get to know those sources. 

Grading Criteria

l. Use of all appropriate sources.
2. Adequacy of statement of rationale for making the investment and supporting the statement with appropriate summary information.
3. Currency of the information.
4. Comparative market analysis of each portfolio.
5. Citing of sources.

Assignment Caveat: The single largest mistake most students make in doing this assignment is not preparing the summary yield and expected capital gains statements for each portfolio.  It is vital that you do this because it shows that you know how to figure out what the entire investments process means to library users.