Lymann Brothers Has a Substantial Number of Clients Who Wish

question 54

Essay

Lymann Brothers has a substantial number of clients who wish to own a mutual fund portfolio that closely matches the performance of the S&P 500 stock index.A manager at Lymann Brothers has selected five mutual funds that will be considered for inclusion in the portfolio.The manager must decide what percentage of the portfolio should be invested in each mutual fund. $$\begin{array}{l}\text { Annual Returns (Planning Scenarios) }\\\begin{array} { l r r r r } \text { Mutual Fund } & \text { Year 1 } & \text { Year 2 } & \text { Year3 } & \text { Year 4 } \\\hline \text { International Stock } & 25.64 & 27.62 & 5.80 & - 3.13 \\\text { Large-Cap Blend } & 15.31 & 18.77 & 11.06 & 4.75 \\\text { Mid-Cap Blend } & 18.74 & 18.43 & 6.28 & - 1.04 \\\text { Small-Cap Blend } & 14.19 & 12.37 & - 1.92 & 7.32 \\\text { Intermediate Bond } & 7.88 & 9.45 & 10.56 & 3.31 \\\hline \text { S\&P 500 } & 13.00 & 12.00 & 7.00 & 2.00\end{array}\end{array}$$ Minimize the variance of the portfolio subject to constraints on the expected return,assuming that Lymann Brothers' client requires the expected portfolio return to be at least 9 percent.

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Definitions:

Core Competencies

are the unique capabilities or advantages that give an organization a competitive edge in the market or industry.

Autonomy

The degree to which a job provides an employee with discretion and independence to schedule their work and determine how it is done.

Ambidexterity

The ability of an organization to simultaneously explore new possibilities while exploiting existing competencies and resources effectively.

Differentiation

The process of distinguishing or separating elements, often seen in businesses as the practice of making a product or service stand out from competitors through unique features.