An investor wishes to invest some of all his 12.5 million in a diversified portf
ID: 443752 • Letter: A
Question
An investor wishes to invest some of all his 12.5 million in a diversified portfolio through a commercial lender. The types of investments, the expected interest per year, and the maximum allowed percentage investment he will consider are shown the following table. He wants at least 35% of his investment to be nonmortgage instruments and no more than 60% to be in high-yield (and high-risk) instruments (i.e., expected interest >8%). How should his investment be diversified to make the most interest income?
Take a screenshot of SOLVER before you run it.. Please show step by step with all the fromulas visable in the cells.
INVESTMENT EXPECTED INTEREST Maximun ALLOWED Low-income mortgage 7.00% 20% Conventional mortgage Loans 6.25% 40% Government sponsored mortgage loans 8.25% 25% Bond Investments 5.75% 12% Stock investments 8.75% 15% Futures trading 9.50% 10%Explanation / Answer
he should be allocate 10% on futures trading, and 15% on stock investments, 25% on mortgaged loans and 10% on low income mortgage. then the toal investment will becomes 60% on this area and the return is:
10% on $12.5 million is $2.5 million, in the similar way all the remaining are:
1.25mill*9.5%+1.875m*8.75%+3.125*8.25+1.25m*8.25
=118750+164062+257812+103125= $643,749
from the remaining they can choose conventional mortgage loans
40% of 12.5 millions is $500,000
500,000*6.25= 31,250
the total return is= 643,749+31250= 674999
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