Question

Suppose that you are considering investing some of your money ($10,000) into two assets: government bonds and stock market. You anticipate that the return rate for government bond is 10% and for stock market is 20%. Since the stock market is more risky, you do not want to input more than $4,000 in it. Similarly, you plan to spend at least $3,000 on the government bonds. What will be your investment portfolio in order to maximize your total return?

Answer 1

To maximize returns, invest the maximum allowable amount of $4,000 in the stock market with a 20% return, and the remaining $6,000 in government bonds with a 10% return.

Step-by-step explanation:

You are looking to create an investment portfolio to maximize your total return on a $10,000 investment with certain constraints for government bonds and the stock market.

To achieve the maximum total return, you would need to invest as much as possible in the asset with the higher return rate, which is the stock market, while adhering to your risk constraints. You mentioned that the return rate for government bonds is 10% and for the stock market is 20%, and you do not want to invest more than $4,000 in the stock market. You also plan to spend at least $3,000 on government bonds. Therefore, based on your limitations and the aim of maximizing returns, you should invest the maximum allowable amount in the stock market, which is $4,000, and the remaining $6,000 in government bonds.