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 V 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. b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client? What is the annual return for the portfolio? c. Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor? d. Suppose that a third client with $50,000 to invest has been classified as a conservative investor. B&R recommends that the maximum portfolio risk rating for a conservative investor is 160. Develop the recommended investment portfolio for the conservative investor.
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 V 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. b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client? What is the annual return for the portfolio? c. Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor? d. Suppose that a third client with $50,000 to invest has been classified as a conservative investor. B&R recommends that the maximum portfolio risk rating for a conservative investor is 160. Develop the recommended investment portfolio for the conservative investor.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:A
1 B & R, Inc.
2
3
4
5 Budget ($1,000)
6
Max Risk Rating
7
8
9 Annual Return%
10 Risk Rating per ($1,000)
11 Max Investment ($1,000)
12
Parameters
13
14
15
16 Amount to Invest ($1,000)
17 Max amount in Internet fun
18
19 Total Return ($1,000)
Model
20
21 Total Invested ($1,000)
22 Total Risk Rating
23
24
25
26
27
28
29
30
31
32
33
B
$50.00
240
Internet Fund
Internet Fund
12%
6
35
$35.00
C
Blue Chip Fund
9%
4
Blue Chip Fund
$50.00
240.00
D
E
Transcribed Image Text:Problem 3P
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 V 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.
b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio
for this client? What is the annual return for the portfolio?
c. Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R
recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended
investment portfolio for this aggressive investor?
d. Suppose that a third client with $50,000 to invest has been classified as a conservative investor. B&R
recommends that the maximum portfolio risk rating for a conservative investor is 160. Develop the recommended
investment portfolio for the conservative investor.
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Step 1: What is a Linear Programming model
VIEWStep 2: a) Formulate a Linear Programming model to find the best investment strategy.
VIEWStep 3: b) Use Excel Solver to suggest an appropriate investment portfolio for a moderate investor.
VIEWStep 4: c) Use Excel Solver to suggest an appropriate investment portfolio for an aggressive investor.
VIEWStep 5: d) Use Excel Solver to suggest an appropriate investment portfolio for a conservative investor.
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