Blair & Rosen, Inc. (B&R) is a brokerage firm that specializes in investment portfoliosdesigned to meet the specific risk tolerances of its clients. A client who contacted B&Rthis past week has a maximum of $50,000 to invest. B&R’s investment advisor decidesto recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12 percent, and the BlueChip fund has a projected annual return of 9 percent. The investment advisor requires thatat most $35,000 of the client’s funds should be invested in the Internet fund. B&R servicesinclude a risk rating for each investment alternative. The Internet fund, which is themore risky of the two investment alternatives, has a risk rating of 6 per $1,000 invested.The Blue Chip fund has a risk rating of 4 per $1,000 invested. For example, if $10,000 isinvested in each of the two investment funds, B&R’s risk rating for the portfolio would be6(10) 1 4(10) 5 100. Finally, B&R developed a questionnaire to measure each client’srisk tolerance. Based on the responses, each client is classified as a conservative, moderate,or aggressive investor. Suppose that the questionnaire results classified the currentclient as a moderate investor. B&R recommends that a client who is a moderate investorlimit his or her portfolio to a maximum risk rating of 240. a. Formulate a linear programming model to find the best investment strategy for thisclient.
Blair & Rosen, Inc. (B&R) is a brokerage firm that specializes in investment portfolios
designed to meet the specific risk tolerances of its clients. A client who contacted B&R
this past week has a maximum of $50,000 to invest. B&R’s investment advisor decides
to recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12 percent, and the Blue
Chip fund has a projected annual return of 9 percent. The investment advisor requires that
at most $35,000 of the client’s funds should be invested in the Internet fund. B&R services
include a risk rating for each investment alternative. The Internet fund, which is the
more risky of the two investment alternatives, has a risk rating of 6 per $1,000 invested.
The Blue Chip fund has a risk rating of 4 per $1,000 invested. For example, if $10,000 is
invested in each of the two investment funds, B&R’s risk rating for the portfolio would be
6(10) 1 4(10) 5 100. Finally, B&R developed a questionnaire to measure each client’s
risk tolerance. Based on the responses, each client is classified as a conservative, moderate,
or aggressive investor. Suppose that the questionnaire results classified the current
client as a moderate investor. B&R recommends that a client who is a moderate investor
limit his or her portfolio to a maximum risk rating of 240.
a. Formulate a linear programming model to find the best investment strategy for this
client.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
