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Mr and Mrs

question 267

Multiple Choice

Mr. and Mrs. Garcia have a total of $200,000 to be invested in stocks, bonds, and a money market account. The stocks have a rate of return of 11%/year, while the bonds and the money market account pay 9% and 3%/year, respectively. They have stipulated that the amount invested in stocks should be equal to the sum of the amount invested in bonds and 7 times the amount invested in the money market account. How should the Garcias allocate their resources if they require an annual income of $20,000 from their investments?

Definitions:

Minority Shareholder

An investor who owns less than 50% of a company's shares and therefore does not have control over company decisions but may still enjoy rights such as receiving dividends.

DCF Stock Valuation Model

A method to estimate the value of a stock by using predicted cash flows and discounting them to present value.

Share of Stock

A unit of ownership in a company that entitles the holder to a proportion of the corporation's assets and profits.

Growth Stocks

Growth stocks are shares in companies that are expected to grow at an above-average rate compared to their industry or the overall market.