BD AutoSave All. W= TMGT 7060 HW2 Q Search (Cmd + Ctrl + U) Home Insert Draw Design Layout References Mailings Review View Comments Editing Share Times New... 11 Paste B I U ab x, ' A Aa D [ AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdEe AaBb( > Normal No Spacing Heading 1 Heading 2 Title Styles Pane Dictate Add-ins Editor QUESTION 3 Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client's needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%. The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60,000. According to Innis' risk measurement system, each unit invested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the riskier investment. Innis's client also specified that at least $300,000 be invested in the money market fund. Let S = units purchased in the stock fund M = units purchased in the money market fund The computer solution is as follows Optimal Objective Value = 62000.00000 Variable Value Reduced Cost S M 4000.00000 10000.00000 0.00000 0.00000 Constraint Slack/Surplus Dual Value 1 2 0.00000 0.00000 -0.05667 2.16667 3 7000.00000 Objective Variable Coefficient Allowable Increase S M 8.00000 3.00000 Infinite 3.40000 Constraint RHS Value Allowable Increase 0.00000 Allowable Decrease 4.25000 Infinite Allowable Decrease 1 2 3 1200000.00000 60000.00000 3000.00000 300000.00000 42000.00000 7000.00000 420000.00000 12000.00000 Infinite + Min 8S + 3M Sita 50S + 100M 5S + 4M = M >= 1,200,000 60,000 3,000 S, M >= 0 a) What is the optimal solution, and what is the minimum total risk? b) Specify the objective coefficient ranges. c) How much annual income will be earned by the portfolio? d) What is the rate of return for the portfolio? e) What is the dual value for the funds available constraint? f) What is the marginal rate of return on extra funds added to the portfolio? g) Suppose the risk index for the stock fund (the value of) increases from its current value of 8 to 12. How does the optimal solution change, if at all? h) Suppose the risk index for the money market fund (the value of) increases from its current value of 3 to 3.5. How does the optimal solution change, if at all? i) Suppose increases to 12 and increases to 3.5. How does the optimal solution change, if at all? 1033 words English (United States) Focus + 100%