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#5) 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,

#5) 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 Return

Maximum Allowed

Low-income mortgage loans

6.50%

20%

Conventional mortgage loans

6.00%

30%

Government sponsored mortgage loans

8.25%

25%

Bond investments

5.75%

15%

Stock investments

8.75%

18%

Futures trading

9.25%

10%

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