39. Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client's needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%. 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 invested 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 riskier investment. Innis's client also specified 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 portfolio. b. How much annual income will this investment strategy generate? c. Suppose the client desires to maximize annual return. How should the funds be invested?
39. Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client's needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%. 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 invested 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 riskier investment. Innis's client also specified 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 portfolio. b. How much annual income will this investment strategy generate? c. Suppose the client desires to maximize annual return. How should the funds be invested?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
Transcribed Image Text:39. Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client's
needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market
fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100
and provides an annual rate of return of 4%.
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 invested 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 riskier investment. Innis's client
also specified 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 portfolio.
b. How much annual income will this investment strategy generate?
c. Suppose the client desires to maximize annual return. How should the funds be invested?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 6 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.