answer can be obtained from chegg

Answer can be obtained from chegg

Jonathan and his wife, Ivy, are empty nesters with annual salaries of $500,000 and $300,000,

respectively. Both expected their salaries to increase by 5% per year. Although Jonathan,
aged 55, he expects to work for another ten years before retiring. Ivy, aged 52, is not in good
health and plans to retire in five years’ time. After she retires, she expects to incur about
$150,000 in medical bills from the sixth year onwards, increasing at 2% per year thereafter
due to the rising cost of healthcare. For the coming year, the couple expects to incur a
combined $220,000 in living expenses, which are also expected to grow annually at 2% due
to inflation.
Your team has been tasked by Jonathan and Ivy to grow their portfolio, which currently has
investable assets of $1.5 million to $10 million over a ten-year horizon. In any given year, net
cash flow surpluses are expected to contribute to the portfolio and net cash flow needs are
expected to be met from the portfolio. Jonathan and Ivy would like the portfolio to be
diversified and take only long positions in Singaporean equities. Your risk assessment
indicates that they can tolerate a 1% chance of losses exceeding $300,000 in any given year.
The effective income tax rate is 15% for both Jonathan and Ivy. Neither capital gains nor
dividends are taxed. Assume all cash flows occur at the end of the year.

Prepare an estimate of the return requirement for Jonathan’s portfolio.


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