Blair & Rosen, Inc. (B&R) is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted B&R this past week has a maximum of $50,000 to invest. B&Rs 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%, while the Blue Chip fund has a projected annual return of 9%. The investment advisor requires that at most $35,000 of the clients funds should be invested in the Internet fund. B&R 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, B&Rs risk rating for the portfolio would be 6(10) + 4(10) = 100. Finally, B&R developed a questionnaire to measure each clients 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. B&R recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240.

Problem 2-27

Internet fund	$
Blue Chip fund	$
Annual return	$

Internet fund	$
Blue Chip fund	$
Annual return	$

What is the recommended investment portfolio for this client? What is the annual return for the portfolio? If required, round your answers to the nearest dollar.

Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor? If required, round your answers to the nearest dollar.

Discuss what happens to the portfolio under the aggressive investor strategy.

The aggressive investor puts the maximum amount allowed in the Internet fund because it is the least risky

The aggressive investor puts the maximum allowed in the Internet fund because it has the highest return

The aggressive investor puts the maximum allowed in the Blue Chip fund because it is the least risky

The aggressive investor puts the maximum allowed in the Blue Chip fund because it is the least risk