Lisa has $100,000 to invest in 10 mutual fund alternatives. She has some self-im

Question

Lisa has $100,000 to invest in 10 mutual fund alternatives. She has some self-imposed restrictions for her investment strategy. First, she must invest all of the $100,000. For diversification, no more than $25,000 can be invested in any fund. However, if a fund is chosen for investment, then at least $10,000 must be invested in it. No more than two funds can be pure growth funds. At least one pure bond fund must be selected. The total amount invested in pure bond funds must be at least as much as the amount invested in pure growth funds.

Formulate and solve a model that will maximize Lisa’s expected annual return.

How much do you invest in Fund 1 (round to the nearest whole dollar)?

How much do you invest in Fund 2 (round to the nearest whole dollar)?

How much do you invest in Fund 3 (round to the nearest whole dollar)?

How much do you invest in Fund 4 (round to the nearest whole dollar)?

How much do you invest in Fund 5 (round to the nearest whole dollar)?

How much do you invest in Fund 6 (round to the nearest whole dollar)?

How much do you invest in Fund 7 (round to the nearest whole dollar)?

How much do you invest in Fund 8 (round to the nearest whole dollar)?

How much do you invest in Fund 9 (round to the nearest whole dollar)?

How much do you invest in Fund 10 (round to the nearest whole dollar)?

Fund type expected return 1 growth 7.20 2 growth 6.99 3 growth 8.45 4 growth 7.45 5 growth and income 7.23 6 growth and income 6.45 7 growth and income 7.06 8 stock and bond 6.90 9 bond 5.15 10 bond 5.08

Explanation / Answer

Out of the pure growth funds, fund 3 has the highest return at 8.45.
Also out of the pure bond funds, fund 9 has the highest return at 5.15.

And to fit in the condition that atleast one investment should be pure bond fund and the investment in bond fund should be equal to the investment in pure growth fund and no fund can have more than 25000 in it.

We invest 25000 in Fund 3
and 25000 in fund 9

Now out of the remaining funds fund 5 are 7 are with maximum rrrreturns and thus will invest 25000 each in both the funds to complete the entire 100,000

Investing in the maximum returns would maximise the total return and thus the above mentioned funds should be invested in.


How much do you invest in Fund 1 is $0
How much do you invest in Fund 2 is $0
How much do you invest in Fund 3 is $25000
How much do you invest in Fund 4 is $0
How much do you invest in Fund 5 is $25000
How much do you invest in Fund 6 is $0
How much do you invest in Fund 7 is $25000
How much do you invest in Fund 8 is $0
How much do you invest in Fund 9 is $25000
How much do you invest in Fund 10 is $0

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.