JONES INVESTMENT SERVICE Concepts: Minimization Charles Jones is a financial advisor who specializes in making recommendations to investors who have recently come into unexpected sums of money from inheri- tances, lottery winnings, and the like. He discusses investment goals with his clients, taking into account each client's attitude toward risk and liquidity. After an initial consultation with a client, Charles selects a group of stocks, bonds, mutual funds, savings plans, and other investments that he feels may be ap- propriate for consideration in the portfolio. He then secures information on each investment and determines his own rating. With this information he develops a chart giving the risk factors (numbers between 0 and 100, based on his evaluation), expected returns based on current and projected company operations, and liquid- ity information. At the second meeting Charles defines the client's goals more specifically. The responses are entered into a linear programming model, and a recommendation is made to the client based on the results of the model. Frank Baklarz has just inherited $100,000. Based on their initial meeting, Charles has found Frank to be quite risk-averse. Charles, therefore, suggests the following potential investments that can offer good returns with small risk. Potential Expected Jones's Liquidity Risk Investment Return Rating Analysis Factor Savings account 4.0% Immediate 0 Certificate of deposit 5.2% A 5-year Atlantic Lighting 7.1% B+ Immediate 25 Arkansas REIT 10.0% Immediate 30 Bedrock Insurance annuity 8.2% A 1-year 20 Nocal Mining bond 6.5% B+ 1-year 15 Minicomp Systems 20.0% Immediate 65 Antony Hotels 12.5% Immediate 40 Based on their second meeting, Charles has been able to help Frank develop the following portfolio goals. 1. An expected annual return of at least 7.5% 2. At least 50% of the inheritance in A-rated investments 3. At least 40% of the inheritance in immediately liquid investments 4. No more than $30,000 in savings accounts and certificates of deposit Given that Frank is risk-averse, Charles would like to make a final recommenda- tion that will minimize total risk while meeting these goals. A 0 B A JONES INVESTMENT SERVICE Concepts: Minimization Charles Jones is a financial advisor who specializes in making recommendations to investors who have recently come into unexpected sums of money from inheri- tances, lottery winnings, and the like. He discusses investment goals with his clients, taking into account each client's attitude toward risk and liquidity. After an initial consultation with a client, Charles selects a group of stocks, bonds, mutual funds, savings plans, and other investments that he feels may be ap- propriate for consideration in the portfolio. He then secures information on each investment and determines his own rating. With this information he develops a chart giving the risk factors (numbers between 0 and 100, based on his evaluation), expected returns based on current and projected company operations, and liquid- ity information. At the second meeting Charles defines the client's goals more specifically. The responses are entered into a linear programming model, and a recommendation is made to the client based on the results of the model. Frank Baklarz has just inherited $100,000. Based on their initial meeting, Charles has found Frank to be quite risk-averse. Charles, therefore, suggests the following potential investments that can offer good returns with small risk. Potential Expected Jones's Liquidity Risk Investment Return Rating Analysis Factor Savings account 4.0% Immediate 0 Certificate of deposit 5.2% A 5-year Atlantic Lighting 7.1% B+ Immediate 25 Arkansas REIT 10.0% Immediate 30 Bedrock Insurance annuity 8.2% A 1-year 20 Nocal Mining bond 6.5% B+ 1-year 15 Minicomp Systems 20.0% Immediate 65 Antony Hotels 12.5% Immediate 40 Based on their second meeting, Charles has been able to help Frank develop the following portfolio goals. 1. An expected annual return of at least 7.5% 2. At least 50% of the inheritance in A-rated investments 3. At least 40% of the inheritance in immediately liquid investments 4. No more than $30,000 in savings accounts and certificates of deposit Given that Frank is risk-averse, Charles would like to make a final recommenda- tion that will minimize total risk while meeting these goals. A 0 B A