Question

Problem 2-39 innis Investments manages funds for a number of companies and weslthy cients. The investment strategy is tailored to each client's needs. For a new dient, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund costs $100 and provides an annual rate of return of 4%. money market fund. Each unit of the stock fund costs SS and prov des an annual rate of return of 10% each unit of he The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60,000. According to Innis's risk measurement system, each unit nvested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the niskoer investment. Innis's dlient also specifies that at least $300,000 be invested in the money market fund a. Determine how many units of each fund Innis should purchase for the client to minimize the total risk index for the portfolia. Let S number of units purchased in the stock fund M number of units purchased in the money market fund Optimal Solution: S , value- b. How much annual income will this investment strategy generate? Annual income-$ c. Suppose the cient desires to maximize annual return. How should the funds be invested? Invest everything in the Check My Work 2 more Check My Work uses remaning Previous Next

Answer 1

Answer:----- Date:--01/06/2019

Let Snumber of units purchased in the stock fund M- number of units purchased in the money market fmd a. Min8S3M s.t 50S00M 1.200.000 Funds available 5S4M 60.000 Annual income Minimum units in money n 3.000 market S. M. 20 20000 S+32-6 8+3 62,000 2 15000 Optimal Solution 10000 5000 5000 10000 5000 20000 Optimal Solution: S4000. M 10000, value 62000 b. Annual income = 5(4000) + 4(10000-60000 c. Invest everything in the stock fund