Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client’s needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%.The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60,000. According to Innis’s risk measurement system, each unit invested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the riskier investment. Innis’s client also specifies that at least $300,000 be invested in the money market fund.a. determine how many units in each fund Inns should purchase for the client's minimize the total risk index of the portifilio.b. how much anual income will this investment strategy generate?c. Suppose this client desires to maximize annual return. How should the funds be invested?

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Asked Jan 19, 2019
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Innis Investments manages funds for a number of companies and wealthy clients. The investment strategy is tailored to each client’s needs. For a new client, Innis has been authorized to invest up to $1.2 million in two investment funds: a stock fund and a money market fund. Each unit of the stock fund costs $50 and provides an annual rate of return of 10%; each unit of the money market fund costs $100 and provides an annual rate of return of 4%.

The client wants to minimize risk subject to the requirement that the annual income from the investment be at least $60,000. According to Innis’s risk measurement system, each unit invested in the stock fund has a risk index of 8, and each unit invested in the money market fund has a risk index of 3; the higher risk index associated with the stock fund simply indicates that it is the riskier investment. Innis’s client also specifies that at least $300,000 be invested in the money market fund.
a. determine how many units in each fund Inns should purchase for the client's minimize the total risk index of the portifilio.
b. how much anual income will this investment strategy generate?
c. Suppose this client desires to maximize annual return. How should the funds be invested?

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Expert Answer

Step 1

Here we have to consider 2 assumptions

1.X units in stock fund is

2.Y units in money market fund is 

Then total fund investment=$1.2million

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Step 2

We already know that fund in money market is atleast $300000

so

 Stock fundMoney
Unit rate50100
APR10%4%
Risk index83
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Step 3

Annual icome should be at least $60...

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