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
The non current asset section of Aadil & Co. at December 31, 2005 is as under:- Land Rs. 1,000,000 Office equipment Rs. 5,000,000 Less: accumulated depreciation 250,000 4,75

What kinds of risks does a firm like Amazon.com face with respect to safeguarding its assets? What types of controls do you think it already has in place to minimize these risks? G


You are considering whether to replace an existing flow meter in an ongoing operation. A change in the meter will have not affect revenues but will reduce costs. The existing meter

Wider-range Investments (Requiring advice in writing from a properly qualified person) Quoted shares of a company with a paid-up capital of not less than Shs10m and has

Accounting Date In determining the accounting date of the trust, the trustees will consider the following: Date of death (accounts to anniversary of death); Fiscal y

The price stages are that at which sellers recruit securities to borrowers.

Alta Velocidad Esperanza de L'Argentina, Sociedad Anónima (AVE), a high-speed railway operator domiciled in Rio Norte, Argentina, is a Foreign Private Issuer as defined by the U.S.

Clarkston Inc issued $1,000,000 of convertible 10- year, 11% bonds on July 1, 2014. The interest is payable semiannually on January 1 and July 1. The discount in connection with th

March and has already accumulated $30,000 in manufacturing costs, Job B and order for 10,000silver medallions, was not started until April. Transactions for these jobs are the foll