Question

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 $55,000 to invest. B&R's 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 17%, while the Blue Chip fund has a projected annual return of 8%. The investment advisor requires that at most $25,000 of the client's 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 5 per thousand dollars invested. The Blue Chip fund has a risk rating of 5 per thousand dollars 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 5(10) + 5(10) = 100. Finally, B&R developed a questionnaire to measure each client's 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.

Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client?
	Internet Fund = $ Blue Chip Fund = $
	What is the annual return for the portfolio?
	$
(c)	Suppose that a second client with $55,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 350. What is the recommended investment portfolio for this aggressive investor?
	Internet Fund = $ Blue Chip Fund = $ Annual Return = $
(d)	Suppose that a third client with $55,000 to invest has been classified as a conservative investor. B&R recommends that the maximum portfolio risk rating for a conservative investor is 150. Develop the recommended investment portfolio for the conservative investor.
	Internet Fund = $ Blue Chip Fund = $ Annual Return = $

Answer 1

		For both funds
	Risk rating	5
	Both investment has equal risk rating
	Maximum risk rating for the investor=240
	Investment amount=X thousand
	5X=240
	X=240/5=48thousand
	Maximum Investment	$48,000
	Internet fundmaximum investment-25000
	Investment in internet Fund	$25,000
	Investment in Bluechip Fund	$23,000	(48000-25000)
	Total	$48,000
	Total risk rating=5*25+5*23=	240
	nternet Fund	=	$25,000
	Blue Chip Fund	=	$23,000
	Annual return for the portfolio	$6,090	(0.17*25000+0.08*23000)
	AGGRESSIVE INVESTOR
	Risk rating	350
	Amount can be invested=350/5 thousands
	Amount can be invested=	$        70,000
	Amount available	$        55,000
	Internet fund investment	$25,000
	Bluechip fund investment	$30,000
	Internet Fund	=	$25,000
	Blue Chip Fund	=	$30,000
	Annual Return	=	$6,650.00		(0.17*25000+0.08*30000)
	CONSERVATIVE INVESTOR
	Risk rating	150
	Amount can be invested=150/5 thousands
	Amount can be invested=	$30,000
	Internet fund investment	$25,000
	Bluechip fund investment	$5,000
	Internet Fund	=	$25,000
	Blue Chip Fund	=	$5,000
	Annual Return	=	$4,650		(0.17*25000+0.08*5000)