What is the total risk and total return, Financial Accounting

Financials Investments, 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 stocks 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 invest is $200,000)

               0.10S + 0.05M ≥ 14,000 (return must be at least $14,000)

                                    M ≥ 40,000 (at least $40,000 must be in money market)

                                 S, M ≥0

Where

S = dollars invested in stock fund

M = dollars invested in money market fund

1) Solve this problem graphically (As done in the class).

2) Then set it up in Excel and solve it.

3) Email the excel model which has the sum product formula to the instructor.

a)       How much money should be invested in stock fund and in money market fund?

b)       What is the Total Risk?

c)       What is the total return? What rate of return is this?

d)      Would solution change if risk measure for each dollar in the stock fund were 14 instead of 12?

e)       For each additional dollar that is available, how much does the risk change?

f)        Would solution change if the amount that must be invested in the money market fund were changed from $40,000 to $50,000?

Posted Date: 3/29/2013 2:34:40 AM | Location : United States







Related Discussions:- What is the total risk and total return, Assignment Help, Ask Question on What is the total risk and total return, Get Answer, Expert's Help, What is the total risk and total return Discussions

Write discussion on What is the total risk and total return
Your posts are moderated
Related Questions
Given the information that follows, draw a cash budget for the XYZ Store for the first six months of 2012. Every prices and costs remain constant. Sales are 80% for credit

GoFlo is a small growing firm that is considering the purchase of another truck to serve GoFlo's expanding customer base. The new truck will cost $21,000 and should generate annual

GOLD MOUNTAIN SKI RESORT CASE You work for a venture firm and have been asked to analyze a proposal from a group of investors interested in building a new ski area in Colorado. The

TERMINATION OF APPOINTMENTS A trustee may cease to hold office in the following ways: (a) Disclaimer : At any time before acceptance of the trusts. (b) Retirement : Eith

Mark up Mark up is defined as the rate of gross profit to cost of sales: Mark up = Gross Profit                Cost of sales Margin is defined as the rate of gros

On January 1, 2011, Doty Co. redeemed its 15-year bonds of $2,500,000 par value for 102. They were originally issued on January 1, 1999 at 98 with a maturity date of January 1, 201

Q. Example on Differential cash flows? Differential cash flows: contracting out versus in-house provision NET PRESENT VALUE =£45519 The positive NPV signifies th

Omission to do something which a reasonable man, guided by those ordinary considerations that ordinarily regulate human affairs, would do or doing of something that a reasonable an

The following information for the six months ended 31 December 2009 relates to the business of Mr N Morris: a) Opening cash (including bank) balance Rs 1,200 b) Production in unit