A Financial Advisor Is About to Build an Investment Portfolio

question 39

Essay

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 two "points" per $1,000 invested. B earns 6 percent with 3 risk points; C earns 9 percent with 7 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-half of the total invested. A cannot be less than 20 percent of the total investment. D cannot be less than C. Total risk points must be at or below 1,000.Identify the decision variables of this problem. Write out the objective function and constraints. Do not solve.

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Definitions:

Probability Distribution

A function in statistics outlining every possible outcome and its probability for a random variable across a predetermined scope.

Car Salespeople

Individuals engaged in selling automobiles, often working at car dealerships or showrooms.

Joint Probability Distribution

The probability distribution of two or more random variables at the same time, used to study the relationship between them.

Probability Distribution

Describes how the probabilities are distributed over the values of a random variable, showing the likelihood of different outcomes.