1. Capital Investment Corp. specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted Capital has $2,500,000 available to invest.

Capital's investment advisor recommends a portfolio consisting of two investment funds: the Ecom fund and the Blue Chip fund. The Ecom fund has a projected annual return of 12%, and the Blue Chip fund has a projected annual return of 9%.

The investment advisor requires that at most $1,750,000 of the client's funds should be invested in the Ecom fund. Capital's services include a risk rating for each investment alternative. The Ecom fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per $50,000 invested. The Blue Chip fund has a risk rating of 4 per $50,000 invested. For example, if $500,000 is invested in each of the two investment funds, Capital's risk rating for the portfolio would be 6(10) + 4(10) = 100.

Finally, Capital 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 client as a moderate investor. Capital 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?

2. Referring to Problem No. 1, suppose that a second client with $2,500,000 to invest has been classified as an aggressive investor. Capital recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor? What is the annual return for the portfolio?