Investment advisory firms offer investment advice and provide their clients with the best mix of financial...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Investment advisory firms offer investment advice and provide their clients with the best mix of financial assets to invest in with different risk tolerance levels. Assume that you work for XYZ investment advisory firm that uses an asset allocation model to recommend the portion of each client's portfolio to be invested in three funds, Alpha, Bravo, and Charlie. Table 1 shows XYZ's general guidelines of the minimum and maximum percentage of the total portfolio value invested in these three funds. For example, if a client has $100,000 to invest, the amount of Alpha fund in the portfolio will be between $20,000 to $40,000 ($100,000*20% to $100,000*40%.) In addition, XYZ attempts to assess the risk tolerance of each client and adjust the portfolio to meet the needs of the individual investor. Fund Alpha Bravo Charlie Table 1. Min/Max percentage of the total portfolio Minimum Percentage Invested Maximum Percentage Invested 20% 45% 15% 50% 30% Now you have a new client Mr. Smith who has $800,000 to invest. Based on an evaluation. of Mr. Smith's risk tolerance, you assign a maximum risk index of 0.05 for him. Table 2 shows the individual risk rating of the funds based on XYZ's risk indicators. An overall portfolio risk index is computed as a weighted average of the risk rating for the three funds, where the weights are the fraction of the client's portfolio invested in each of the funds. Additionally, annual yields forecasted by XYZ are also shown in Table 2. Based on the information provided, how should Mr. Smith be advised to allocate the $800,000 among Alpha, Bravo, and Charlie funds? What is the annual yield you anticipate for the investment recommendation? Fund Alpha Bravo Charlie Table 2. Risk ratings and yields of the funds Risk Rating 0.1 0.06 0.02 Annual Yields 18% 12.5% 7.5% You are asked to develop a linear programming model that will provide the maximum yield for the portfolio. Create a spreadsheet model to develop an optimal feasible solution of the investment portfolio to present to Mr. Smith. Write up a report to recommend how much of the $800,000 should be invested in each of the three funds and what the annual yield is. Additionally, use the model to do some analysis and answer the following questions: 1. Assume that Mr. Smith's risk index could be increased to 0.06. How much would the yield increase, and how would the investment recommendation change? 2. Refer again to the original situation, in which Mr. Smith's risk index was assessed to be 0.05. How would your investment recommendation change if the annual yield for the Alpha were revised downward to 17.5% or even to 16%? 3. Assume that the client expressed some concern about having too much money in the Alpha. How would the original recommendation change if the amount invested Alpha is not allowed to exceed the amount invested in Bravo? Investment advisory firms offer investment advice and provide their clients with the best mix of financial assets to invest in with different risk tolerance levels. Assume that you work for XYZ investment advisory firm that uses an asset allocation model to recommend the portion of each client's portfolio to be invested in three funds, Alpha, Bravo, and Charlie. Table 1 shows XYZ's general guidelines of the minimum and maximum percentage of the total portfolio value invested in these three funds. For example, if a client has $100,000 to invest, the amount of Alpha fund in the portfolio will be between $20,000 to $40,000 ($100,000*20% to $100,000*40%.) In addition, XYZ attempts to assess the risk tolerance of each client and adjust the portfolio to meet the needs of the individual investor. Fund Alpha Bravo Charlie Table 1. Min/Max percentage of the total portfolio Minimum Percentage Invested Maximum Percentage Invested 20% 45% 15% 50% 30% Now you have a new client Mr. Smith who has $800,000 to invest. Based on an evaluation. of Mr. Smith's risk tolerance, you assign a maximum risk index of 0.05 for him. Table 2 shows the individual risk rating of the funds based on XYZ's risk indicators. An overall portfolio risk index is computed as a weighted average of the risk rating for the three funds, where the weights are the fraction of the client's portfolio invested in each of the funds. Additionally, annual yields forecasted by XYZ are also shown in Table 2. Based on the information provided, how should Mr. Smith be advised to allocate the $800,000 among Alpha, Bravo, and Charlie funds? What is the annual yield you anticipate for the investment recommendation? Fund Alpha Bravo Charlie Table 2. Risk ratings and yields of the funds Risk Rating 0.1 0.06 0.02 Annual Yields 18% 12.5% 7.5% You are asked to develop a linear programming model that will provide the maximum yield for the portfolio. Create a spreadsheet model to develop an optimal feasible solution of the investment portfolio to present to Mr. Smith. Write up a report to recommend how much of the $800,000 should be invested in each of the three funds and what the annual yield is. Additionally, use the model to do some analysis and answer the following questions: 1. Assume that Mr. Smith's risk index could be increased to 0.06. How much would the yield increase, and how would the investment recommendation change? 2. Refer again to the original situation, in which Mr. Smith's risk index was assessed to be 0.05. How would your investment recommendation change if the annual yield for the Alpha were revised downward to 17.5% or even to 16%? 3. Assume that the client expressed some concern about having too much money in the Alpha. How would the original recommendation change if the amount invested Alpha is not allowed to exceed the amount invested in Bravo?
Expert Answer:
Answer rating: 100% (QA)
To develop an optimal feasible solution for Mr Smiths investment portfolio we can use linear program... View the full answer
Related Book For
Auditing A Practical Approach
ISBN: 9780730382645
4th Edition
Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton
Posted Date:
Students also viewed these banking questions
-
Many of you may have watched Friends when it was on television and may even still watch the reruns. In 2000, the case of Friends, one of the hottest shows on television, demanded a pay increase. The...
-
Investment Strategy J. D. Williams, Inc. is an investment advisory firm that manages more than $120 million in funds for its numerous clients. The company uses an asset allocation model that...
-
J. D. Williams, Inc., is an investment advisory firm that manages more than $120 million in funds for its numerous clients. The company uses an asset allocation model that recommends the portion of...
-
The statement of financial position of Kingbird Limited follows for the current year, 2020: KINGBIRD LIMITED Statement of Financial Position December 31, 2020 Current assets $135,660 Current...
-
An engineer wishes to determine the shearing strength of a certain epoxy cement. The problem is to devise a test specimen such that the joint is subject to pure shear. The joint shown in the figure,...
-
You are provided with the following information for Petro Pushers. Petro Pushers uses the periodic method of accounting for its inventory transactions. March 1 Beginning inventory 2,200 liters at a...
-
Each year, 33 race cars start the Indianapolis 500. How many ways can the cars finish first, second, and third?
-
How can Kevin contribute to both his companys successful implementation of the acquisition and to understanding mergers and acquisitions? Kevin found the discussion on insider action research in his...
-
How can you use your understanding of diversity to develop your relationship-building skills in your healthcare career?,Explain ways in which religion can help or hinder individuals as they build...
-
During the boom years of 2010-2014, ace mutual fund manager Diana Sauros produced the following percentage rates of return. Rates of return on the market are given for comparison. Calculate the...
-
What is the benchmark for each ratio? Why is it important to use benchmarks or historical numbers for comparison? Are Marabelle's ratios falling within appropriate range? Explain. What elements does...
-
As we know, there has been a lot happening during the pandemic covid 19. Why is the stimulus check so important? What benefit would it have on the economy? Would it benefit several small businesses?...
-
Jim Company acquired a 100% of the common stock of John Company on January 1, 2024. John Company maintains separate incorporation. Immediately following the acquisition, Jim and John had the...
-
Jane earned $124135 working as a CA last year. The total of contributions to her DCPP last year was $10447. Jane also maintains an RRSP account for herself. Assuming that she has no unused RRSP...
-
Write 5 main ideas , and explain each one briefly on how you can manage professionally to handle an e-commerce companies financial Data.
-
1. When more than one adaptive radiationsappeared to have occurred in an isolatedgeographical area, this is called as : (1) Convergent evolution (2) Divergent evolution (3) Retrogressive evolution...
-
Which of the following is not a function of parathyroid hormone (PTH)? Multiple Choice Lower blood calcium Promote calcium reabsorption by the kidneys Stimulate osteoclast activity Inhibit osteoblast...
-
Could the owner of a business prepare a statement of financial position on 9 December or 23 June or today?
-
Additions and disposals of PPE: (a) Are usually minor amounts so are not audited. (b) Are usually tested for cut-off. (c) Can be easily audited through analytical procedures so no other tests are...
-
An accounts receivable positive confirmation: (a) Provides evidence about the classification assertion. (b) Provides evidence about the existence of the accounts receivable. (c) Provides evidence...
-
What is the difference between a legal confirmation and a legal representation letter?
-
What are the issues surrounding smartphones, social media, and cybersecurity confronting modern organizations?
-
How can one engage in effective cross-cultural communication in organizations?
-
Can you think of any barriers that impacted communication effectiveness in this situation? How might one attempt to alter how they communicate to address or eliminate any of these barriers?
Study smarter with the SolutionInn App