Exhibit 7.2
The following questions are based on the problem below.
An investor has $150,000 to invest in investments A and B. Investment A requires a $10,000 minimum investment, pays a return of 12% and has a risk factor of .50. Investment B requires a $15,000 minimum investment, pays a return of 10% and has a risk factor of .20. The investor wants to maximize the return while minimizing the risk of the portfolio. The following multi-objective linear programming (MOLP) has been solved in Excel.
-Refer to Exhibit 7.2. What formula goes in cell B11?
A) =SUMPRODUCT(B2:C2,$B$6:$C$6)/$D$7
B) =B2*C2+B3*C3
C) =SUMPRODUCT(B3:C3,$B$6:$C$6)/$D$7
D) =SUMPRODUCT(B3:C3,$B$6:$C$6)

Question

Exhibit 7.2
The following questions are based on the problem below.
An investor has $150,000 to invest in investments A and B. Investment A requires a $10,000 minimum investment, pays a return of 12% and has a risk factor of .50. Investment B requires a $15,000 minimum investment, pays a return of 10% and has a risk factor of .20. The investor wants to maximize the return while minimizing the risk of the portfolio. The following multi-objective linear programming (MOLP) has been solved in Excel. 
-Refer to Exhibit 7.2. What formula goes in cell B11?
A) =SUMPRODUCT(B2:C2,$B$6:$C$6)/$D$7 
B) =B2*C2+B3*C3 
C) =SUMPRODUCT(B3:C3,$B$6:$C$6)/$D$7 
D) =SUMPRODUCT(B3:C3,$B$6:$C$6)

Quizplus · Accepted Answer

Cell B11 represents the total risk of the portfolio which is calculated using the formula =SUMPRODUCT(B3:C3,$B$6:$C$6)/$D$7. This formula calculates the weighted average of the risk factor for each investment based on the amount invested and divides it by the total amount invested. The best choice for the investor would be to invest $15,000 in Investment B to get a return of 10% with a risk factor of 0.2, and invest the remaining $135,000 in Investment A to get a return of 12% with a risk factor of 0.5. This results in a total return of 11.4% and a total risk factor of 0.43, which is the lowest risk possible for this level of return.

Exhibit 7.2 The Following Questions Are Based on the Problem Below