Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailed to each clients needs. For a new client,

Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailed to each clients 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 $10 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 Inniss 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. Inniss client also specifies that at least $300,000 be invested in the money market fund.

a. Determine how many units of each fund Innis should purchase for the client to minimize the total risk index for the portfolio.

b. How much annual income will this investment strategy generate?

c. Suppose the client desires to maximize annual return. How should the fund be invested?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance

Authors: Keith Pilbeam

4th Edition

0230362893, 978-0230362895

More Books

Students also viewed these Finance questions

Question

Did you open with an issue explanation?

Answered: 1 week ago