Question

Suppose that you inherit

$10 comma 00010,000.

The will states how you must invest the money. Some (or all) of the money must be invested in stocks and bonds. The requirements are that at least
$30003000

be invested in bonds, with expected returns of
$0.140.14

per dollar, and at least
$20002000

be invested in stocks, with expected returns of
$0.190.19

per dollar. Because the stocks are medium risk, the final stipulation requires that the investment in bonds should never be less than the investment in stocks. How should the money be invested so as to maximize your expected returns?To maximize the expected returns, invest

$60006000

in bonds and
$60006000

in stocks.Step 1

**Note:** Here we have considered that “$10 comma 00010,000 , $30003000, $0.140.14, $20002000, $0.190.19” are repeated twice.

Suppose that you inherit $10000. The will states that you must invest the money (some or all) in stocks and bonds. The requirements are at least $3000 in bond and $2000 in stocks with expected returns of $0.14 per dollar and $0.19 per dollar respectively.

Since, the stocks are medium risk, the final stipulation requires that the investment in bonds should never be less than the investment in stocks.

Step 2

Let x be the amount invested in bond and y be the amount invested in stocks.

So, the expected returns, ER = 0.14x + 0.19y.

Step 3

If we draw the above inequa...

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