Reference no: EM13961912
1. Bhavika Investment, a group of financial advisors and retirement planners, has been requested to provide advice on how to invest $200,000 for one of its clients. The client has stipulated that the money must be put into either a stock fund or a money market fund, and the annual return should be at least $14,000. Other conditions related to risk have also been specified, and the following linear program was developed to help with this investment decision:
Minimize risk =12S+5M
Subject to:
S+M=200,000 Total investment is $200,000
0.10S+0.005M=>14,000 return must at least be $14,000
M=>40,000 at least $40,000 must be in money market fund S,M=>0
Where S=dollars invested in stock fund
M= dollars invested money market fund
A) How much money should be invested in the money market fund and the stock fund? What is the total risk?
B) What is the total return? What rate of return is this?
C) Would the solution change if the risk measure for each dollar in the stock fund were 14 instead of 12?
D) For each additional dollar that is available, how much does the risk change?
E) Would the solution change if the amount that must be invested in the money market fund were changed from $40,000 to $50,000?
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