A couple in their early 30s, Rodney and Carly Madsen recently inherited $90,000 from a relative. Charles earns a comfortable income as a sales manager for System Analytics, Inc., and Carly does equally well as an attorney with a major law firm. Because they have no children and dont need the money, theyve decided to invest all of the inheritance in stocks, bonds, and perhaps even some money market instruments. However, because theyre not very familiar with the market, they turn to you for help.

Critical Thinking

Questions 1. What kind of investment approach do you think the Madsen should adoptthat is, should they be conservative with their money or aggressive? Explain.

2. What kind of stocks do you think the Madsen should invest in? How important is current income (i.e., dividends or interest income) to them? Should they be putting any of their money into bonds? Explain.

3. Construct an investment portfolio that you feel would be right for the Madsen and invest the full $90,000. Put actual stocks, bonds, and/or convertible securities in the portfolio; you may also put up to one-third of the money into short-term securities such as CDs, Treasury bills, money funds, or MMDAs. Select any securities you want, so long as you feel theyd be suitable for the Madsen. Make sure that the portfolio consists of six or more different securities, and use the latest issue of The Wall Street Journal or an online source such as http://finance.yahoo.com to determine the market prices of the securities you select. Show the amount invested in each security along with the amount of current income (from dividends and/or interest) that will be generated from the investments. Briefly explain why you selected these particular securities for the Madsen portfolio.