Question

An investor has up to $250,000 to invest in two types of investments. Type A pays 6% annually and type B pays 8% annually. To have a well-balanced portfolio, the investor imposes the following conditions. At least one-fourth of the total portfolio is to be allocated to type A investments and at least one-fourth of the portfolio is to be allocated to type B investments. What is the optimal amount that should be invested in each type of investment

Answer 1

The optimal amount that should be invested in each type of investment is:

Project A (43%) = $107,500

Project B (57%) = $142,500

Step-by-step explanation:

a) Data and Calculations:

Total investible funds = $250,000

Types of investment vehicles = Type A Type B

Annual returns from each vehicle 6% 8%

Ratio of annual returns = 43%(6/14) 57% (8/14)

Therefore, allocation to each type:

Type A = $107,500 ($250,000 * 43%)

Type B = $142,500 ($250,000 * 57%)