Question

Que 1.a.) Jordans have an Individual Retirement $22,300 which is invested in zero-coupon bonds which mature at john retirement date in three years time. The Jordans broker I.M Slick has recommended that they sell the zero-coupon bonds in their IRAs and invest the proceeds in real estate limited partnership. This venture offers the opportunity for a 15 percent annual return. But it also carries substantial risk. I.M Slick will receive a commission of 8 percent of the monies invested in the partnership. Do you think this an appropriate investment recommendation for Mr. Slick to make? Why or why not? should the Jordans sell the bonds and invest in the partnership? why or why not?

Answer 1

Mr Slick has not made appropriate investment recommendation as the client Jordans are near to retirement and need fixed income once they retire. their ability to take risk is very low as the liquidity requirement at retirement is quite high. If the amount is invested in ventures it bears substantial risk due to which the money is at high risk although it has potential to give higher returns.

No the Jordans should not sell the bonds and should not invest in partnership as the investment bears high risk although it gives higher returns than zero coupon bonds. also it bears higher commission to the brokers which will reduce the return and increase the transaction costs for Jordans. Jordans are near to retirement which reduces their risk taking capability.