Assume that a client has 75000 to invest and the maximum risk rating for this investor is 350. What is the maximum annual return for this client?
Assume that a client has 75000 to invest and the maximum risk rating for this investor is 350. What is the maximum annual return for this client?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assume that a client has 75000 to invest and the maximum risk rating for this investor is 350.
What is the maximum annual return for this client?
Transcribed Image Text:Building a Financial Portfolio. 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.
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