Bhavika Investments, a group of financial advi-
sors and retirement planners, has been requested
to provide advice on how to invest $200,000 for
one of its clients. The client has stipulated that
the money must be put into either a stock fund or
a
be at least $14,000. Other conditions related to risk
have also been specified, and the following linear
program was developed to help with this invest-
ment decision:
Minimize risk = 12S + 5M
subject to
S + M = 200,000 total investment is
$200,000
0.10S + 0.05M Ú 14,000 return must be at least
$14,000
M Ú 40,000 at least 40,000 must be
in money market fund
S, M Ú 0
where
S = dollars invested in stock fund
M = dollars invested in money market fund
The QM for Windows output is shown below.
(a) How much money should be invested in the
money market fund and the stock fund? What is
the total risk?
(b) What is the total return? What
this?
(c) Would the solution change if the risk measure
for each dollar in the stock fund were 14 instead
of 12?
(d) For each additional dollar that is available, how
much does the risk change?
(e) Would the solution change if the amount that
must be invested in the money market fund were
changed from $40,000 to $50,000?
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