Exhibit 7.3
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 minimax formulation of the problem has been solved in Excel.
-Refer to Exhibit 7.3. Which value should the investor change, and in what direction, if he wants to reduce the risk of the portfolio?
A) D11, increase
B) D12, increase
C) C12, increase
D) D12, decrease

Question

Exhibit 7.3
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 minimax formulation of the problem has been solved in Excel. 
-Refer to Exhibit 7.3. Which value should the investor change, and in what direction, if he wants to reduce the risk of the portfolio?
A) D11, increase 
B) D12, increase 
C) C12, increase 
D) D12, decrease

Quizplus · Accepted Answer

The investor should increase the value in cell D12 to reduce the risk of the portfolio. This is because increasing the weight of Investment B (which has a lower risk factor) in the portfolio will decrease the overall risk of the portfolio.

Exhibit 7.3 The Following Questions Are Based on the Problem Below