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Anderson is an investment advisory firm that manages more than $250 million in funds for various clients. The company uses an asset allocation model that recommends a portion of each client's portfolio be invested in a growth stock fund, an income, fund, and a money market fund. Risk for each client is managed through diversification of each client's portfolio. The firm places limits on the percentage of each portfolio that may invested in each of the three funds: Growth fund must be between 20%-40% of the total portfolio value. Income fund must be between 20%-50%; and the Money Market fund must be at least 30% of the total portfolio value. Your first client has $1,000,000 to invest. Based on the evaluation of the client's risk tolerance, he was given a maximum risk index of 0.05. The firms indicators show the risk of growth fund at 0.10, the income fund at 0.07, and the money market fund at 0.01. An overall portfolio risk index is computed as the client's portfolio invested in each of the funds. The firm is currently forecasting annual yields of 18% for the growth fund, 12.5% for the income fund, and 7.5% for the money market fund. Based on the information, how should the $1 million investment be allocated? Develop a linear programming model in Excel that will provide the maximum yield for the portfolio. Included in the report should be the following: 1.Recommend how much of the $1,000,000 should be invested in each of the three funds. What is the annual yield you anticipate for the investment recommendation? 2. If you could convince your client to increase their risk index to 0.055, how much would the yield increase and how would the investment recommendation change? 3. If the annual yield growth for the growth fund was revised downward to 16%, how would the overall yield change along with the recommendation for the three funds? Assume the risk tolerance of 0.05. 4. Assume the client expressed some concern about having too much money in the growth fund. How would the original recommendation change if the amount invested in the growth fund. How would the original recommendation change if the amount invested in the growth fund is not allowed to exceed the amount invested in the income fund? Please show your work in excel.

Operation Management, Management Studies

  • Category:- Operation Management
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