Calvin Jacobs is a widower who recently retired after a longcareer with a major Midwesternmanufacturer. Beginning as a skilled craftsman, he worked his wayup to the level of shop supervisor over a period of more than 30 years with thefirm. 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 2-bedroom rentalhouse that is next to his home, and the rental income from it covers themortgage payments 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 liquidinvestments (all held in bank CDs and savings accounts) runs well into the 6figures. Up to now, Calvin has just let his money grow and has not used any ofhis savings to supplement his Social Security, pension, and rental income. Butthings are about to change. Calvin has decided, “What the heck, it’s time Istart living the good life!” Calvin wants to travel and, in effect, startreaping the benefits of his labors. He has therefore decided to move $100,000from a savings account to 1 or 2 high-yielding mutual funds. He would like toreceive $1,000 to $1,500 a month from the fund(s) for as long as possiblebecause he plans to be around for a long time.Questionsa. Given Calvin’s financial resources and investment objectives, whatkinds of mutual funds doyou think he should consider?b. What factors in Calvin’s situation should be taken intoconsideration in the fund selectionprocess?How might these affect Calvin’s course of action?
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