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92.) Innis Investments manages funds for a number of companies
and wealthy clients. The investment strategy is tailed to each
client’s needs. For a new client, Innis has been authorized to
invest up to $1,245,000 in two investment funds: a stock fund and a
money market fund. Each unit of the stock fund costs $50 and
provides an annual rate of return of 10%; each unit of the money
market fund costs $10 and provides an annual rate of return of 4%.
The client wants to minimize risk subject to the requirement that
the annual income from the investment be at least $57,000.
According to Innis’s risk measurement system, each unit invested in
the stock fund has a risk index of 8, and each unit invested in the
money market fund has a risk index of 3; the higher risk index
associated with the stock fund simply indicates that it is the
riskier investment. Innis’s client also specifies that at least
$300,000 be invested in the money market fund.
a. Determine how many units of each fund Innis should purchase
for the client to minimize the total risk index for the
portfolio.
b. How much annual income will this investment strategy
generate?
c. Suppose the client desires to maximize annual return. How
should the fund be invested?





