8 PERCENT EXCEEDS THE REQUIRED RETURN OF 4 PERCENT, AND THE REQUIR...

5.8 percent exceeds the required return of 5.4 percent, and the required return would actually

decline if the surviving spouse lives longer than five years. The time horizon for the portfolio is

relatively short, ranging from a minimum of five years to a maximum of 10 years. The

Mueller’s sole objective for these funds is to provide adequate funds for the building addition.

Growth requirements for the portfolio are modest and the Mueller’s willingness to take on risk

is low. The portfolio would be unlikely to achieve its objective if large, even short term, losses

were absorbed during the minimum five year time horizon. Except for taxes, no principal or

income disbursements are expected for at least five years; therefore, only a minimal or even

zero cash reserve is required. Accordingly, an allocation of 40 percent to equities to provide

some growth and 60 percent to intermediate fixed income to provide stability and capital

preservation is appropriate.

There is no second best portfolio. Portfolio A’s cash level is higher than necessary and the

portfolio’s expected return is insufficient to achieve the $2,600,000 value within the minimum