Which investment portfolio maximizes average annual return

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Reference no: EM133911413

Problem

An investor is considering allocating exactly $10,000 among five investment alternatives. The five alternatives and their respective fund categories, risk levels, and average annual returns are shown below: The risk level of each investment is rated on a scale of 1 to 5, where 1 is very conservative and 5 is very risky. The risk level is assessed based on the amount (in $s) invest. For instance, if an investor puts $1 into Adams, the risk level is 1. If the investment for Adams is $2, the risk level becomes 2. The investor would like to maximize the average annual return on his investment subject to the following restrictions:

• The average risk level of the entire investment should not exceed 2.5.

• At least 30% of the entire investment should be placed in money market funds.

• At most $2,000 should be invested in the aggressive growth fund. Get the instant assignment help.

Which investment portfolio maximizes the average annual return for this investor? What are the decision variables? Clearly define them and assign them a symbol (as we do in class).

Reference no: EM133911413

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