A Tacoma financial services allocates funds to: stocks, bonds, mutual funds, and cash. For each instrument,...

  

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A Tacoma financial services allocates funds to: stocks, bonds, mutual funds, and cash. For each instrument, rate of return and risk are as shown: Instrument Annual Return Risk Stock 10% Bond 3% Mutual Fund 4% Cash 1% 0.8 0.2 0.3 0.0 Total risk is limited to value based on client type. Currently we have a client with max risk tolerance of 0.5. The company has the following guidelines: Investment in mutual funds must be at least as much as in bonds No more than 70% of investment in stocks Amount of cash at least 8%, but no more than 25% In figuring out the optimal investment allocation for this client, please answer three questions: a. What are the decision variables? b. What is the objective function? c. List all the constraints. A Tacoma financial services allocates funds to: stocks, bonds, mutual funds, and cash. For each instrument, rate of return and risk are as shown: Instrument Annual Return Risk Stock 10% Bond 3% Mutual Fund 4% Cash 1% 0.8 0.2 0.3 0.0 Total risk is limited to value based on client type. Currently we have a client with max risk tolerance of 0.5. The company has the following guidelines: Investment in mutual funds must be at least as much as in bonds No more than 70% of investment in stocks Amount of cash at least 8%, but no more than 25% In figuring out the optimal investment allocation for this client, please answer three questions: a. What are the decision variables? b. What is the objective function? c. List all the constraints.