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Solution-Tutorial-5

Solution-Tutorial-5 - AB103 Statistical and Quantitative...

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1 AB103 – Statistical and Quantitative Methods Solutions - Tutorial 5 Chapter 2 (ASWM) 2.1 (page 70) 2.20 (page 73)
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2 2.24 (page 75)
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3 2.25 (pages 74-75)
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4 Internet fund $20,000 Blue Chip fund $30,000 Annual return $ 5,100 b. The third constraint for the aggressive investor becomes 6 I + 4 B 320 This constraint is redundant ; the available funds and the maximum Internet fund investment constraints define the feasible region. The optimal solution is: Internet fund $35,000 Blue Chip fund $15,000 Annual return $ 5,550 The aggressive investor places as much funds as possible in the high return but high risk Internet fund.
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5 c. The third constraint for the conservative investor becomes 6 I + 4 B 160 This constraint becomes a binding constraint. The optimal solution is Internet fund $0 Blue Chip fund $40,000 Annual return $ 3,600 The slack for constraint 1 is $10,000. This indicates that investing all $50,000 in the Blue Chip fund is still too risky for the conservative investor. $40,000 can be invested in the Blue Chip fund. The remaining $10,000 could be invested in low-risk bonds or certificates of deposit. 2.37 (page 79) b. Annual income = 5(4000) + 4(10000) = 60,000
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6 c. Invest everything in the stock fund.
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