Calvin Jacobs Finance for Business Case Study Please write up a professional case on Calvin Jacobs, answering all questions in the case. 509
CHAPTER 12 MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS
Case Problem 12.2
Calvin Jacobs Seeks the Good Life
LG3 G4 Calvin Jacobs is a widower who recently retired after a long career with a major Midwestern
manufacturer. Beginning as a skilled craftsman, he worked his way up to the level of shop super-
visor over a period of more than 30 years with the firm. Calvin receives Social Security benefits
and a generous company pension. Together, these amount to over $4,500 per month (part of
which is tax-free). The Jacobses had no children, so he lives alone. Calvin owns a two-bedroom
rental house that is next to his home, and the rental income from it covers the mortgage pay-
ments for both the rental house and his house.
Over the years, Calvin and his late wife, Allie, always tried to put a little money aside each
month. The results have been nothing short of phenomenal. The value of Calvin’s liquid invest-
ments (all held in bank CDs and savings accounts) runs well into the six figures. Up to now,
Calvin has just let his money grow and has not used any of his savings to supplement his Social
Security, pension, and rental income. But things are about to change. Calvin has decided, “What
the heck, it’s time I start living the good life!” Calvin wants to travel and, in effect, start reaping
the benefits of his labors. He has therefore decided to move $100,000 from a savings account to
one or two high-yielding mutual funds. He would like to receive $1,000 to $1,500 a month from
the fund(s) for as long as possible because he plans to be around for a long time.
a. Given Calvin’s financial resources and investment objectives, what kinds of mutual funds do
you think he should consider?
b. What factors in Calvin’s situation should be taken into consideration in the fund selection
process? How might these affect Calvin’s course of action?
c. What types of services do you think he should look for in a mutual fund?
d. Assume Calvin invests in a mutual fund that earns about 10% annually from dividend income
and capital gains. Given that Calvin wants to receive $1,000 to $1,500 a month from his mutual
fund, what would be the size of his investment account five years from now? How large would
the account be if the fund earned 15% on average and everything else remained the same? How
important is the fund’s rate of return to Calvin’s investment situation? Explain.
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