Question

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 has a maximum of $75,000 to invest. B&R recommends two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 14 percent, and the Blue Chip fund has a projected annual return of 6 percent. At most $20,000 of the client's funds should be invested in the Internet fund.

The Internet fund is more risky and has a risk rating of 6 per $1000 invested. The Blue Chip fund has a risk rating of 3 per $1000 invested. For example, if $10,000 is invested in each of the two investment funds, B&R's risk rating for the portfolio would be 6(10)+3(10)=100. B&R recommends this client to limit his portfolio to a maximum risk rating of 300.

Build a spreadsheet model and solve the problem using Excel solver.

What is the recommended investment amount in dollars for Internet fund and Blue Chip fund?
(answer in thousands (000s) without the $ sign - for example, $10,000 would be entered as 10)

a: Internet Fund:

b. Blue Chip Fund:

What is the maximum total annual return in dollars for the portfolio for this client?
(answer in thousands (000s) without the $ sign - for example, $10,000 would be entered as 10
use 1 decimal place if necessary)

c. Annual Return.

Answer 1

x = amount invested in Internet fund (in thousand)
y = amount invested in Blue chip fund (in thousand)

Maximize
Z = 0.14 x + 0.06 y

x+y <= 75
x <= 20
6x + 3y <= 300

Using Excel

data -> solver

Formulas

a) x = 20

b) y = 55

c) total annual return = 6.1