ASSET ALLOCATION A financier plans to invest up to
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Chapter 4 Solutions
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- If during the following year it is predicted that each comedy skit will generate 30 thousand and each musical number 20 thousand, find the maximum income for the year. A television program director must schedule comedy skits and musical numbers for prime-time variety shows. Each comedy skit requires 2 hours of rehearsal time, costs 3000, and brings in 20,000 from the shows sponsors. Each musical number requires 1 hour of rehearsal time, costs 6000, and generates 12,000. If 250 hours are available for rehearsal and 600,000 is budgeted for comedy and music, how many segments of each type should be produced to maximize income? Find the maximum income.arrow_forwardStore A and Store B compete for the business of the same customer base. Store A has 55% of the business and Store B has 45 %. Both companies intend to expand to increasse their market share. If both expand, or neither expand, they expect theri market share to remain the same. If Store A expands and Store B does not, the Store A"A share increases to 65%. If Store B expands and Store A doesnt, then Store A's share drops to 50%. Determine which strategy, to expand or not, each company should take.arrow_forwardElaine Benes is considering three possible ways to invest the $200,000 she has just inherited. Some of Elaine’s friends are considering financing a combined laundromat, video-game arcade, and pizzeria, where the young singles in the area can meet and play while doing their laundry. This venture is highly risky and could result in either a major loss or a substantial gain within a year. Elaine estimates that the chances of losing all the money (i.e. loss of $200,000) are 47%, while the chances of making a $200,000 profit are 53%. Elaine can invest in some new apartments that are being built in town. Within 1 year, this fairly conservative project will produce a profit of at least $10,000, but it might yield $20,000 or even $30,000. Elaine estimates the probabilities of these yields at 20%, 50%, and 30% respectively. Elaine can invest in some private securities that have a current yield of 5%. Construct (draw) a decision tree for Elaine to determine which investment will maximize her…arrow_forward
- An investor has $5000 to invest in three different accounts. One is low-risk,one is a medium-risk and the third is a high-risk investment. The low-risk account is expected to pay 5.2% interest, the medium-risk investment is expected to pay 6.7% interest and the high-risk investment is espected to pay10.3% interest. Due to her age, the investor is willing to invest twice as much money in the high-risk account as in the low-risk investment. How much money should be invested in each of the accounts to anticipate a return of 8% on the total investment.arrow_forwardThe research department at a manufacturing company has developed a new process that it believes will result in an improved product. Management must decide whether to go ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides to market it, sales should increase by $70,000. If it is not better and they replace the old product with the new product on the market, they will lose $25,000 to competitors. If they decide not to market the new product, they will lose a total of $60,000 if it is better and just research costs of $20,000 if it is not. Complete parts (a) and (b) below. (a) Prepare a payoff matrix. □ (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.)arrow_forwardThe research department at a manufacturing company has developed a new process that it believes will result in an improved product. Management must decide whether to go ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides to market it, sales should increase by $60,000. If it is not better and they replace the old product with the new product on the market, they will lose $25,000 to competitors. If they decide not to market the new product, they will lose a total of $50,000 if it is better and just research costs of $20,000 if it is not. Answer parts a through c below. (a) Prepare a payoff matrix. Start 2 By 2 Table 1st Row 1st Column 60000 2nd Column negative 25000 2nd Row 1st Column negative 50000 2nd Column negative 20000 EndTable 60000 −25000 −50000 −20000 (Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.) (b) If…arrow_forward
- George Johnson recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 11% for the bond fund and 15% for the stock fund. Whatever portion of the inheritance he finally decides to commit to the trust fund, he wants to invest at least 30% of that amount in the bond fund. In addition, he wants to select a mix that will enable him to obtain a total return of at least 12.5%. (a) Formulate a linear programming model that can be used to determine the percentage (as a decimal) that should be allocated to each of the possible investment alternatives. (Assume B is the percentage (as a decimal) of funds invested in the bond fund and S is the percentage (as a decimal) of funds invested in the stock fund.) Max (as a decimal) s.t. bond minimum fund minimum return percentage requirement B, S≥ 0…arrow_forwardAlan, Hannah, and Carolyn start a business agd invest $9000, $3000 and $6000 respectively. After a few months, if Carolyn decides to sell his shares to Alan and Bianca, he much would Alan and Blanca have to pay for Carolyn's shares if they want to maintain their initial investment ratio? a. Alan pays $1200; Hannah pays $4800 b. Alan pays $4800; Hannah pays $1200 C. Alan pays $1500; Hannah pays $4500 d. Alan pays $4500; Hannah pays $1500arrow_forwardA financial manager has to invest $ 200000 in two options, one risky with a return of 20% and second less risky with a return of 10% per year. If the goal is to make $ 32000 at the end of the year what should be distribution of the money in both options.arrow_forward
- Jorge has decided to invest at most $80,000 in securities in the form of corporate stocks. He has classified his options into three groups of stocks: bluechip stocks that he assumes will yield a 10% return (dividends and capital appreciation) within a year, growth stocks that he assumes will yield a 15% return within a year, and speculative stocks that he assumes will yield a 20% return (mainly due to capital appreciation) within a year. Because of the relative risks involved in his investment, Jorge has further decided that no more than 30% of his investment should be in growth and speculative stocks and at least 50% of his investment should be in blue-chip and speculative stocks. Determine how much Jorge should invest in each group of stocks in the hope of maximizing the return on his investments. bluechip $ growth $ speculative $ What is the maximum return?arrow_forwardA large defense contractor is considering making a specialized investment in a facility to make helicopters. The firm currently has a contract with the government, which, over the lifetime of the contract, is worth 100mn euro to the firm. It is considering building a new production plant for these helicopters; doing so will reduce the production costs to the company, increasing the value of the contract from 100mn euro to 200mn euro. The cost of the plant will be 60mn euro. However, there is the possibility that the government will cancel the contract. If that happens, the value of the contract will fall to zero. The problem (from the company’s point of view) is that it will only find out about the cancellation after it completes the new plant. At this point, it appears that the probability that the government will cancel the contract is 0.45. Draw a decision tree reflecting the decisions and find the equilibrium.arrow_forwardrefer to image below.arrow_forward
- Linear Algebra: A Modern IntroductionAlgebraISBN:9781285463247Author:David PoolePublisher:Cengage LearningCollege Algebra (MindTap Course List)AlgebraISBN:9781305652231Author:R. David Gustafson, Jeff HughesPublisher:Cengage Learning