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Problem 4: INVESTMENT STRATEGY Leila plans to invest $100,000 in stocks, bonds, and mutual funds. She expects to earn 15% on her stocks 8%
Problem 4: INVESTMENT STRATEGY Leila plans to invest $100,000 in stocks, bonds, and mutual funds. She expects to earn 15% on her stocks 8% on bonds, and 10% on mutual funds. She also figures there is a risk factor of 7% with stocks, 3% with bonds, and 5% with mutual funds a. Develop a procedure for using matrix inversion to decide how much money she should invest in stocks, in bonds, and in mutual funds if she wants the potential of making a total profit of P dollars with a total risk of R dollars. b. She has several investment plans to consider, three of which have the risk-reward characteristics listed in the following table: Plan #1 Plan #2 Plan #3 Total expected profit P Total acceptable risk R $11.400 $12.100 $13,900 $5,200 $5.500 $6,500 Use the procedure you developed in part (a) to find the amount of money Leila should allocate to stocks, to bonds, and to mutual funds for each of the three plans.
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