Question
3. Chole Pitt, a very famous and wealthy actress has signed a contract with Bollywood investment. She has asked them to invest her savings of
3. Chole Pitt, a very famous and wealthy actress has signed a contract with Bollywood investment. She has asked them to invest her savings of $300,000. Bollywood has recommended a mix of three investments, European Stock fund, Crypto fund, and Money market fund.
Below are some restrictions Bollywood firm has agreed to follow:
- A risk index fund of 0.05
- Fraction of Chole Wests portfolio invested in European stock fund is at least 10%, for Crypto fund also at least 10%, and at least 20% must be in money market fund.
The risk ratings for the European, Crypto and money market funds are 0.1, 0.05 and 0.01, respectively. A risk index is calculated as a weighted average of the risk ratings for the three funds where the weights are the fraction of the portfolio invested in each of the funds.
Bollywood is currently forecasting a yield of 20% on the European fund, 10% on the Crypto fund, and 6% on the money market fund.
- Develop a linear programming model to select the best mix of investments for Chole West portfolio.
- Use Solver to solve the model you developed in part (a).
- How much may the yields on the three funds vary before it will be necessary for to company to modify Chloes portfolio?
- If Chloe were more risk tolerant, how much of a yield increase could she expect? For instance, what if her portfolio risk index is increased to 0.06?
- If Bollywood revised the yield estimate for the European fund downward to 0.10, how would you recommend modifying Chloes portfolio?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started