Blair & Rosen, Inc. (B&R) is a brokerage firm that specializes in investment portfoliosdesigned to meet the specific risk tolerances of its clients. A client who contacted B&Rthis past week has a maximum of $50,000 to invest. B&R’s investment advisor decidesto recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12 percent, and the BlueChip fund has a projected annual return of 9 percent. The investment advisor requires thatat most $35,000 of the client’s funds should be invested in the Internet fund. B&R servicesinclude a risk rating for each investment alternative. The Internet fund, which is themore risky of the two investment alternatives, has a risk rating of 6 per $1,000 invested.The Blue Chip fund has a risk rating of 4 per $1,000 invested. For example, if $10,000 isinvested in each of the two investment funds, B&R’s risk rating for the portfolio would be6(10) 1 4(10) 5 100. Finally, B&R developed a questionnaire to measure each client’srisk tolerance. Based on the responses, each client is classified as a conservative, moderate,or aggressive investor. Suppose that the questionnaire results classified the currentclient as a moderate investor. B&R recommends that a client who is a moderate investorlimit his or her portfolio to a maximum risk rating of 240.
a. Formulate a linear programming model to find the best investment strategy for thisclient.
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here