3-14

An investor wishes to invest some or all of his $12.5 million in a diversified portfolio through a commercial lender.The types of investments, the expected interest per year, and the maximum allowed percentage investment he will consider are shown on the following table.He wants at least 35% of his investments to be in nonmortgage instruments and no more than 60% to be in high-yield (and high-risk) instruments (i.e. expected interest < 8%).How should his investment be diversified to make the most interest income?

Investment

Expected Interest

Maximum Allowed

Low-income mortgage loans

7.00%

20%

Conventional mortgage loans

6.25%

40%

Government sponsored mortgage loans

8.25%

25%

Bond investments

5.75%

12%

Stock investments

8.75%

15%

Futures trading

9/50%

10%