Use the Table Below to Answer the Following Questions) The Company Recommends That No More Than $300,000 Be Invested

question 58

Multiple Choice

Use the table below to answer the following questions) .
Qualis Investments is a private limited business that manages personal financial portfolios. The company manages six mutual funds and has a client that has acquired $750,000 from an inheritance. Characteristics of the funds are given in the table below. $\begin{array}{|c|l|c|c|}\hline & \text { Qualis Mutual Fund Data } & & \\\hline & & \begin{array}{c}\text { Expected Annual } \\\text { Return }\end{array} & \text { Risk Measure } \\\hline 1 & \text { Qualis Low-priced Stock Fund } & 7.23 \% & 11.87 \\\hline 2 & \text { Qualis Multinational Fund } & 8.42 \% & 12.62 \\\hline 3 & \text { Qualis Mid-cap Stock Fund } & 6.66 \% & 13.72 \\\hline 4 & \text { Qualis Mortgage Fund } & 2.72 \% & 3.37 \\\hline 5 & \text { Qualis Income Equity Fund } & 8.89 \% & 8.4 \\\hline 6 & \text { Qualis Balanced Fund } & 3.50 \% & 6.91 \\\hline\end{array}$ The company recommends that no more than $300,000 be invested in any individual fund, and that at least $80,000 be invested in each of the mid-cap stock and mortgage fund. The total amount invested in the low-priced and multinational funds are at least 35% of the total investment. The client would like an average return of at least 6%. Assume that X1- X6 represent the dollar amounts invested in funds 1 through 6, respectively.
-Which of the following is the objective function minimize total risk?

• A) 11.87 X1 + 12.62 X2 + 13.72 .X3 + 3.37 X4 + 8.4 X5 + 6.91 X6
• B) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6
• C) 11.87 X1 + 12.62 X2 + 13.72 .X3 + 3.37 X4 + 8.4 X5 + 6.91 X6 / 750,000
• D) 7.23 X1 + 8.42 X2 + 6.66 .X3 + 2.72 X4 + 8.89 X5 + 3.5 X6 ? 6%

Calculate and interpret the expected average rate of return on investments.

Identify the methods used in capital investment analysis that account for or ignore present value.

Understand the advantages of the average rate of return method in capital investment decision-making.

Apply sensitivity analysis in capital investment evaluation.

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Definitions:

Financing Activities

Transactions that involve raising funds to finance the company's operations and repaying debt; part of a firm's financial operations detailed on the statement of cash flows.

Principal Repayment

The portion of a loan payment that goes toward reducing the original amount borrowed, not including interest.

Financing Activities

Transactions that result in changes in the size and composition of the equity capital or borrowings of a company.

Debt Repayment

The act of paying back money previously borrowed from a lender, typically according to a prearranged payment schedule.