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Making Investment Decisions Using Linear Equations An investment counselor would like to advise her...

Making Investment Decisions Using Linear Equations

An investment counselor would like to advise her client about three specific investment instruments: a stock-based mutual fund, a corporate bond, and a savings bond. The counselor wants to distribute the total amount of the investment among the individual instruments in the portfolio according to the client’s tolerance for risk. Risk factors for individual instruments can be quantified on a scale of 1 to 5, with 1 being the most risky. The risk factors associated with each investment instrument are summarized in Table 8.2.1.

Table 8.2.1

Investment Instrument

Risk Factor

Stock-based mutual fund

2

Corporate bond

4

Savings bond

5

The client can tolerate an overall risk level of 3.5. In addition, the client wants to invest the same amount of money in the corporate bond as in the savings bond. Set up a system of equations that would determine the percentage of the total investment that should be allocated to each instrument.

Apr 24 2020 View more View Less

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