Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN: 9781305627734
Author: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 11, Problem 3P
Blair & Rosen. Inc. (B&R) is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted B&R this past week has a maximum of $50,000 to invest. B&R’s investment advisor decides to 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%, and the Blue Chip fund has a projected annual return of 9%. The investment advisor requires that at most $35,000 of the client’s funds should be invested in the Internet fund. B&R services include a risk rating for each investment alternative. The Internet fund, which is the more 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 is invested in each of the two investment funds, B&R’s risk rating for the portfolio would be 6(10) + 4(10) = 100. Finally. B&R developed a questionnaire to measure each client’s risk tolerance. Based on the responses, each client is classified as a conservative, moderate, or aggressive investor. Suppose that the questionnaire results classified the current client as a moderate investor. B&R recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240.
- a. Formulate a linear programming model to find the best investment strategy for this client.
- b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client? What is the annual return for the portfolio?
- c. Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor?
- d. Suppose that a third client with $50,000 to invest has been classified as a conservative investor. B&R recommends that the maximum portfolio risk rating for a conservative investor is 160. Develop the recommended investment portfolio for the conservative investor.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Blair & Rosen, Inc. (B&R), is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted B&R this past week has a maximum of $70,000 to invest. B&R's investment advisor decides to 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 8%, whereas the Blue Chip fund has a projected annual return of 7%. The investment advisor requires that at most $45,000 of the
client's funds should be invested in the Internet fund. B&R services include a risk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per thousand dollars invested. The Blue Chip fund has
a risk rating of 4 per thousand dollars invested. For example, if $10,000 is invested in each of the two investment funds, B&R's risk rating for the portfolio would be 6(10) +…
You have $5000 to invest for 1 year. Fund A has an estimated 4% annual return, and Fund B has an
estimated 10% annual return.
Fund A is more stable, and preferred among investors with low risk tolerance. Fund B is less stable,
but has larger returns.
Answer the following questions about this investment opportunity.
Duffin House, Higgins Press, and Sickle Publications all went public on the same day recently. John O'Hagan had the opportunity to participate in all three initial public offerings (partly because he and Marjory Duffin are good friends). He made a considerable profit when he sold all of the stock 2 days later on the open market. The following table shows the purchase price and percentage yield on the investment in each company.
Purchase Priceper Share ($)
Yield (%)
Duffin House (DHS)
8
20
Higgins Press (HPR)
10
15
Sickle Publications (SPUB)
15
15
He invested $25,000 in a total of 2,600 shares and made a $4,350 profit from the transactions. How many shares in each company did he purchase?
Duffin House shares Higgins Press shares Sickle Publications shares
I have
x+y+z=2600
8x+10y+15z=25,000
160x+150y+225z=435,000
i keep getting y=506, i know im doing something wrong :(
Chapter 11 Solutions
Essentials of Business Analytics (MindTap Course List)
Ch. 11 - Kelson Sporting Equipment, Inc., makes two types...Ch. 11 - The Sea Wharf Restaurant would like to determine...Ch. 11 - Blair Rosen. Inc. (BR) is a brokerage firm that...Ch. 11 - Round Tree Manor is a hotel that provides two...Ch. 11 - Industrial Designs has been awarded a contract to...Ch. 11 - Vollmer Manufacturing makes three components for...Ch. 11 - Photon Technologies, Inc., a manufacturer of...Ch. 11 - The Westchester Chamber of Commerce periodically...Ch. 11 - The management of Hartman Company is trying to...Ch. 11 - The employee credit union at State University is...
Ch. 11 - The Atlantic Seafood Company (ASC) is a buyer and...Ch. 11 - The Silver Star Bicycle Company will manufacture...Ch. 11 - The Clark County Sheriff’s Department schedules...Ch. 11 - Bay Oil produces two types of fuel (regular and...Ch. 11 - Consider the following network representation of a...Ch. 11 - Refer to the transportation problem described in...Ch. 11 - Aggie Power Generation supplies electrical power...Ch. 11 - The Calhoun Textile Mill is in the process of...Ch. 11 - Refer to the Calhoun Textile Mill production...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, statistics and related others by exploring similar questions and additional content below.Similar questions
- Your portfolio manager has suggested two high-yielding stocks: The Altria Group (MO) and Reynolds America (RAI). MO shares cost $50, yield 4.5% in dividends, and have a risk index of 2.0 per share. RAI shares cost $55, yield 5% in dividends, and have a risk index of 3.0 per share. You have up to $7,200 to invest and would like to earn at least $335 in dividends. How many shares (to the nearest whole number) of each stock should you purchase to meet your requirements and minimize the total risk index for your portfolio? What is the minimum total risk index? a. buy 190 shares of MO and 70 shares of RAI for a minimum total risk index of 310 b. buy 260 shares of MO and 60 shares of RAI for a minimum total risk index of 600 O c. buy 350 shares of MO and 40 shares of RAI for a minimum total risk index of 620 d. no solution e. buy 100 shares of MO and 40 shares of RAI for a minimum total risk index of 320arrow_forwardAt the end of 2009, right after the great recession of 2008-2009, business partners Mario and Luigi sold their plumbing business and retired. Each of them received $1,000,000 net from the sale. Mario holds an undergaduate business degree and understands risk, return, and divesification. He decides to invest his 1M$ in SPY ETF (essentially a stock that tracks the S&P 500 index performance). Luigi comes from a low income family and could not afford to go to college. He doesn't understand finance and he fears risk, so he decides to put his money in a bank savings account. The average S&P500 annual return from 2010 to 2019 has been 11.3%, the average annual return on a standard savings account has been 0.1% over the last 10 years. What is the difference in FV value (end of 2019) between Mario and Luigi investment holdings?arrow_forwardYour portfolio manager has suggested two high-yielding stocks: The Altria Group (MO) and Reynolds America (RAI). MO shares cost $50, yield 4.5% in dividends, and have a risk index of 2.0 per share. RAI shares cost $55, yield 5% in dividends, and have a risk index of 3.0 per share. You have up to $7,200 to invest and would like to earn at least $335 in dividends. How many shares (to the nearest whole number) of each stock should you purchase to meet your requirements and minimize the total risk index for your portfolio? What is the minimum total risk index?arrow_forward
- Your friend's portfolio manager has suggested two high-yielding stocks: Consolidated Edison (ED) and Royal Bank of Scotland (RBS-K). ED shares cost $40, yield 5.5% in dividends, and have a risk index of 1.0 per share. RBS-K shares cost $25, yield 7.5% in dividends, and have a risk index of 1.5 per share. You have up to $24,000 to invest and would like to earn at least $1,320 in dividends. How many shares (to the nearest whole number) of each stock should you purchase in order to meet your requirements and minimize the total risk index for your portfolio?arrow_forwardAlthough investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a)If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b)From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round…arrow_forwardThe Bennett Distribution Company, a subsidiary of a major home appliance manufacturer, wants to forecast sales for next year. The Atlantic Coast branch, with current sales of $193.8 million, is expected to achieve sales growth of 7.25%; the Midwest branch, with current sales of $79.3 million, is expected to have a increase of 8.20%, and that the Pacific Coast branch, with current sales of $57.5 million, increase its sales 7.15%. What is the predicted average growth rate in sales for the next year? Select one: Or a. The predicted average rate in sales for the next year is 7.46% Or b. The predicted average rate in sales for the next year cannot be calculated due to lack of information O c. The predicted average rate in sales for the next year is 22.6% Or d. The predicted average rate in sales for the next year is 7.53% 6arrow_forward
- Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar- cost averaging and the total shares for the year. Round to…arrow_forwardAlthough investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to…arrow_forwardAlthough investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year.…arrow_forward
- You are a rising star in the music industry and you have just received word that you will be rewarded with a $500,000 bonus this year. As your chauffeur drives you home in the company's limousine, you call your accountant, who suggests investing your bonus in a high-yield account offering 12.6 % continuous interest. A friend you knew in college, however, wants you to invest your bonus in his restaurant business, and has promised 12.6 % interest, compounded quarterly. You want to compare both accounts before making a decision, so you crunch the numbers to find out: HOW LONG WILL IT TAKE TO EARN AN EXTRA $100,000? WHEN WILL THE ACCOUNT HAVE $750,000? HOW LONG WILL IT TAKE TO DOUBLE MY MONEY? HOW LONG WILL IT TAKE TO TRIPLE MY INVESTMENT?arrow_forwardA retail department store must make a choice between two investments with a preferred rate of return of 13.5%. Alternative 1 will provide the store with returns of $12.000 at the end of year two, $15.000 at the end of year four and $9000 at the end of year 6. Alternative 2 will provide the store with annual returns of $5800 per year for six years. Which alternative is preferable? Select one: a. Alternative 2 b. Altemative 1arrow_forwardDuffin House, Higgins Press, and Sickle Publications all went public on the same day recently. John O’Hagan had the opportunity to participate in all three initial public offerings. He made a considerable profit when he sold all of the stock 2 days later on the open market. The following table shows the purchase price and percentage yield on the investment in each company: Purchase Price (per share) Yield (%) Duffin House (DHS) 8 20 Higgins Press (HPR) 10 15 Sickle Publications (SPUB) 15 15 He invested $20,000 in a total of 2,000 shares and made a $3,400 profit from the transactions.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
MATLAB: An Introduction with ApplicationsStatisticsISBN:9781119256830Author:Amos GilatPublisher:John Wiley & Sons Inc
Probability and Statistics for Engineering and th...StatisticsISBN:9781305251809Author:Jay L. DevorePublisher:Cengage Learning
Statistics for The Behavioral Sciences (MindTap C...StatisticsISBN:9781305504912Author:Frederick J Gravetter, Larry B. WallnauPublisher:Cengage Learning
Elementary Statistics: Picturing the World (7th E...StatisticsISBN:9780134683416Author:Ron Larson, Betsy FarberPublisher:PEARSON
The Basic Practice of StatisticsStatisticsISBN:9781319042578Author:David S. Moore, William I. Notz, Michael A. FlignerPublisher:W. H. Freeman
Introduction to the Practice of StatisticsStatisticsISBN:9781319013387Author:David S. Moore, George P. McCabe, Bruce A. CraigPublisher:W. H. Freeman
MATLAB: An Introduction with Applications
Statistics
ISBN:9781119256830
Author:Amos Gilat
Publisher:John Wiley & Sons Inc
Probability and Statistics for Engineering and th...
Statistics
ISBN:9781305251809
Author:Jay L. Devore
Publisher:Cengage Learning
Statistics for The Behavioral Sciences (MindTap C...
Statistics
ISBN:9781305504912
Author:Frederick J Gravetter, Larry B. Wallnau
Publisher:Cengage Learning
Elementary Statistics: Picturing the World (7th E...
Statistics
ISBN:9780134683416
Author:Ron Larson, Betsy Farber
Publisher:PEARSON
The Basic Practice of Statistics
Statistics
ISBN:9781319042578
Author:David S. Moore, William I. Notz, Michael A. Fligner
Publisher:W. H. Freeman
Introduction to the Practice of Statistics
Statistics
ISBN:9781319013387
Author:David S. Moore, George P. McCabe, Bruce A. Craig
Publisher:W. H. Freeman
Solve ANY Optimization Problem in 5 Steps w/ Examples. What are they and How do you solve them?; Author: Ace Tutors;https://www.youtube.com/watch?v=BfOSKc_sncg;License: Standard YouTube License, CC-BY
Types of solution in LPP|Basic|Multiple solution|Unbounded|Infeasible|GTU|Special case of LP problem; Author: Mechanical Engineering Management;https://www.youtube.com/watch?v=F-D2WICq8Sk;License: Standard YouTube License, CC-BY
Optimization Problems in Calculus; Author: Professor Dave Explains;https://www.youtube.com/watch?v=q1U6AmIa_uQ;License: Standard YouTube License, CC-BY
Introduction to Optimization; Author: Math with Dr. Claire;https://www.youtube.com/watch?v=YLzgYm2tN8E;License: Standard YouTube License, CC-BY