Answered: our Transactions demand is 70% Your…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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Question

In the following exercise, separate the investments according to the type of Keynesian demand they are: Transactions (0% to 5%), Precautionary (6% to 9%), and Speculative demand (greater than 10%). Investment in each category has the same risk. So you want to invest in the highest return for the same risk. Take each demand type and choose the highest return and put that amount into the investment. For example, if Bond fund A has a return of 4% and Fund B has a return of 5%, they have the same risk, so you would put $70 into bond fund B.

You have the following investments Opportunities ad returns.

Fidelity Bonds 11%

Fidelity Magellan 9%

Putman Bonds one 4%

Putman bonds Two 12%

Growth Stock One 15%

Growth and Income 8%

Income Fund 3%

Putman Growth 6%

Your Transactions demand is 70%

Your Precautionary Demand is 20%

Your Speculative Demand is 10%

Your Income is $100

What should you invest in for each type of money?

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