activities . An expert on oil and gas taxation , she is not worried about job security — she is content with her income and finds it adequate to allow her to buy and do whatever she wishes . Her current philosophy is to live each day to its fullest , not concerning herself with retirement , which is too far in the future to require her current attention . A month ago , Susan ’ s only surviving parent , her father , was killed in a sailing accident . He had retired in La Jolla , California , two years earlier and had spent most of his time sailing . Prior to retirement , he managed a children ’ s clothing manufacturing firm in South Carolina . Upon retirement he sold his stock in the firm and invested the proceeds in a security portfolio that provided him with supplemental retirement income of over $ 30,000 per year . In his will , he left his entire estate to Susan . The estate was structured in such a way that in addition to a few family heirlooms , Susan received a security portfolio having a market value of nearly $ 350,000 and about $ 10,000 in cash . Susan ’ s father ’ s portfolio contained 10 securities : 5 bonds , 2 common stocks , and 3 mutual funds . The following table lists the securities and their key characteristics . The common stocks were issued by large , mature , well-known firms that had exhibited continuing patterns of dividend payment over the past five years . The stocks offered only moderate growth potential — probably no more than 2 % to 3 % appreciation per year . The mutual funds in the portfolio were income funds invested in diversified portfolios of income-oriented stocks and bonds . They provided stable streams of dividend income but offered little opportunity for capital appreciation .
Now that Susan owns the portfolio , she wishes to determine whether it is suitable for her situation . She realizes that the high level of income provided by the portfolio will be taxed at a rate ( federal plus state ) of about 40 %. Because she does not currently need it , Susan plans to invest the after-tax income primarily in common stocks offering high capital gain potential . During the coming years she clearly needs to avoid generating taxable income . ( Susan is already paying out a sizable portion of her income in taxes .) She feels fortunate to have received the portfolio and wants to make certain it