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A Financial Advisor Is About to Build an Investment Portfolio

Question 98

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A financial advisor is about to build an investment portfolio for a client who has $100,000 to invest. The four investments available are A, B, C, and D. Investment A will earn 4 percent and has a risk of one "point" per $1,000 invested. B earns 6 percent with 2 risk points; C earns 9 percent with 6 risk points; and D earns 11 percent with a risk of 8. The client has put the following conditions on the investments: A is to be no more than one-third of the total invested. A cannot be less than 10 percent of the total investment. D cannot be more than C. Total risk points must be at or below 1,000. Let A be the amount invested in investment A, and define B, C, and D similarly. Formulate the linear programming model.

Correct Answer:

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Maximize return = 0.04A + 0.06B + 0.09C ...

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