Blair A Rosen. Inc. (BAR), is a brokerage linn that specializes in investment portfolios designed to meet the specific risk tolerances of its diems. A client who contacted BAR this past week has a maximum of $50,000 to invest. BAR's investment advisor decides to recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12%, whereas the Blue Chip fund has a projected annual return of 9%. The investment advisor requires that at most $35,000 of the client's funds should he invested in the Internet fund. BAR services include a risk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per thousand dollars invested. The Blue Chip fund has a risk rating of 4 per thousand dollars invested. For example, if $10,000 is invested in each of the two investment funds, BAR's risk rating for the portfolio would be 6(10) + 4(10) = 100. Finally. BAR 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 current client as a moderate investor. BAR recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240. The Sensitivity Report of Problem 27 in Chapter 7 is available: Based on the report: What is the best recommendation of Internet investment and Blue Chip investment? What is the total annual return? If the annual return of Internet changed to 0.1 instead of 0.12, will your investment change? What would the annual return be? If the annual return of Blue Chip decreased to 0.07, will the investment change? What is the non-binding constraint? How much more would the annual return be if you have additional $5.000 to invest (hint: the change is in the first constraint)? Blair A Rosen. Inc. (BAR), is a brokerage linn that specializes in investment portfolios designed to meet the specific risk tolerances of its diems. A client who contacted BAR this past week has a maximum of $50,000 to invest. BAR's investment advisor decides to recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12%, whereas the Blue Chip fund has a projected annual return of 9%. The investment advisor requires that at most $35,000 of the client's funds should he invested in the Internet fund. BAR services include a risk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per thousand dollars invested. The Blue Chip fund has a risk rating of 4 per thousand dollars invested. For example, if $10,000 is invested in each of the two investment funds, BAR's risk rating for the portfolio would be 6(10) + 4(10) = 100. Finally. BAR 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 current client as a moderate investor. BAR recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240. The Sensitivity Report of Problem 27 in Chapter 7 is available: Based on the report: What is the best recommendation of Internet investment and Blue Chip investment? What is the total annual return? If the annual return of Internet changed to 0.1 instead of 0.12, will your investment change? What would the annual return be? If the annual return of Blue Chip decreased to 0.07, will the investment change? What is the non-binding constraint? How much more would the annual return be if you have additional $5.000 to invest (hint: the change is in the first constraint)
