# Annabelle Sizemore has cashed in some treasury bonds and a life insurance policy that her parents had

## Question:

She has decided to select an index fund from Shield Securities and an Internet stock fund from Madison Funds, Inc. She has also decided that the proportion of the dollar amount she invests in the index fund relative to the Internet fund should be at least one-third but that she should not invest more than twice the amount in the Internet fund that she invests in the index fund. The price per share of the index fund is $175, whereas the price per share of the Internet fund is $208. The average annual return during the last 3 years for the index fund has been 17%, and for the Internet stock fund it has been 28%. She anticipates that both mutual funds will realize the same average returns for the coming year that they have in the recent past; however, at the end of the year she is likely to reevaluate her investment strategy anyway. Thus, she wants to develop an investment strategy that will maximize her return for the coming year.

Formulate a linear programming model for Annabelle that will indicate how much money she should invest in each fund and solve this model by using the graphical method.

Suppose Annabelle decides to change her risk-balancing formula by eliminating the restriction that the proportion of the amount she invests in the index fund to the amount that she invests in the Internet fund must be at least one third. What will the effect be on her solution? Suppose instead that she eliminates the restriction that the proportion of money she invests in the Internet fund relative to the stock fund not exceed a ratio of 2 to 1. How will this affect her solution?

If Annabelle can get $1 more to invest, how will that affect her solution? $2 more? $3 more? What can you say about her return on her investment strategy, given these successive changes?

Stocks

Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Mutual Funds

Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the...

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