Portfolio Manager Max Gaines Needs to Develop an Investment Portfolio $\text { Annual Returns (Flanning Scenarios) }$

question 15

Essay

Portfolio manager Max Gaines needs to develop an investment portfolio for his conservative clients. His task is to determine the proportion of the portfolio to invest in each of the five mutual funds listed below so that the portfolio provides the best return possible with a minimum risk. Formulate the maximin linear program. $\text { Annual Returns (Flanning Scenarios) }$
$\begin{array}{c|rrrr}\text { Mutual Fund } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 }\\\hline \text { International Stock } & 22.37 & 26.73 & 6.46 & -3.19 \\\text { Large-Cap Blend } & 14.88 & 18.61 & 10.52 & 5.25 \\\text { Mid-Cap Blend } & 19.45 & 18.04 & 5.91 & -1.94 \\\text { Small-Cap Blend } & 13.79 & 11.33 & -2.07 & 6.85 \\\text { Intermediate Bond } & 7.29 & 8.05 & 9.18 & 3.92\end{array}$

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Definitions:

Debt-Equity Ratio

A ratio indicating a firm's financial leverage, determined by dividing its total debts by its shareholder equity.

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue from its customers by dividing total net credit sales by the average accounts receivable.

Net Working Capital

This is a measure of a company's liquidity, calculated as the difference between its current assets and current liabilities.

Current Assets

Assets that are expected to be converted into cash, sold, or used up within one year or within the normal operating cycle of the business, whichever is longer.