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A person wants to invest $10,000 into stocks: a high tech company (T) with an expected...

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Basic Math

A person wants to invest $10,000 into stocks: a high techcompany (T) with an expected annual return of 12% and a risk indexof 8; and a regulated power company (P) with an expected annualreturn of 6% and a risk index of 2. To limit risk, the combinedportfolio risk must be no more than 6 and the proportion ofinvestment in T must be less than 60%. Find the portfolio that willmaximize the annual return R while meeting the risklimitations.

a. Formulate the Investment Portfolio problem with therequirement of investing up to $10,000, and solve itgraphically.

b. Compute the increase in annual return if the total investmentis increased by $1,000.

c. Compute the increase in annual return if the constraint ofportfolio risk index is increased from 6 to 7.

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