A Financial Advisor Is About to Build an Investment Portfolio

question 2

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 one "point" per $1,000 invested. B earns 6 percent with 2 risk points; C earns 9 percent with 6 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-third of the total invested. A cannot be less than 10 percent of the total investment. D cannot be more than C. Total risk points must be at or below 1,000. Let A be the amount invested in investment A, and define B, C, and D similarly. Formulate the linear programming model.

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Definitions:

Lowest Level

Refers to the bottom or most basic tier in a hierarchy or scale, often implying the most fundamental or minimal position.

Transition

A process or period of change from one state or condition to another, often used in reference to developmental stages or life changes.

Widowhood

The state of having lost one's spouse through death, which can have significant effects on social, emotional, and financial aspects of the surviving partner's life.

Hospice

An approach to end-of-life care that emphasizes a dying patient’s need for pain management; psychological, spiritual, and social support; and death with dignity.