You are the manager of a £100 million portfolio, and you have 6 investment options: • First Mortgages: return 9% and risk score 3 • Second Mortgages: return 12% and risk score 6 • Personal Loans: return 15% and risk score 8 • Commercial Loans: return 8% and risk score 2 . Government Securities: return 6% and risk score 1 • Saving Account: return 3% and risk score 0 The current regulation requires that the amount allocated in second mortgages and personal loans (combined) should not exceed the amount allocated in firs mortages. Given this information: 1. Ignoring the risk involved in the different investment options, what is the profit maximizing allocation of resources? What are the expected profits? 2. Now, you have to consider the risk associated with the investments. The average risk of your portfolio cannot exceed 5. What is the profit maximizing allocation of resources? What are the expected profits?

Database System Concepts
7th Edition
ISBN:9780078022159
Author:Abraham Silberschatz Professor, Henry F. Korth, S. Sudarshan
Publisher:Abraham Silberschatz Professor, Henry F. Korth, S. Sudarshan
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You are the manager of a £100 million portfolio, and you have 6 investment options:
• First Mortgages: return 9% and risk score 3
• Second Mortgages: return 12% and risk score 6
• Personal Loans: return 15% and risk score 8
• Commercial Loans: return 8% and risk score 2
• Government Securities: return 6% and risk score 1
Saving Account: return 3% and risk score 0
The current regulation requires that the amount allocated in second mortgages and personal loans (combined) should not exceed the amount allocated in first
mortages.
Given this information:
1. Ignoring the risk involved in the different investment options, what is the profit maximizing allocation of resources? What are the expected profits?
2. Now, you have to consider the risk associated with the investments. The average risk of your portfolio cannot exceed 5. What is the profit maximizing
allocation of resources? What are the expected profits?
Transcribed Image Text:You are the manager of a £100 million portfolio, and you have 6 investment options: • First Mortgages: return 9% and risk score 3 • Second Mortgages: return 12% and risk score 6 • Personal Loans: return 15% and risk score 8 • Commercial Loans: return 8% and risk score 2 • Government Securities: return 6% and risk score 1 Saving Account: return 3% and risk score 0 The current regulation requires that the amount allocated in second mortgages and personal loans (combined) should not exceed the amount allocated in first mortages. Given this information: 1. Ignoring the risk involved in the different investment options, what is the profit maximizing allocation of resources? What are the expected profits? 2. Now, you have to consider the risk associated with the investments. The average risk of your portfolio cannot exceed 5. What is the profit maximizing allocation of resources? What are the expected profits?
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