Need help finding annual return. Blair&Rosen;, Inc. (B&R;) is a brokerage firm t

Question

Need help finding annual return.

Blair&Rosen;, Inc. (B&R;) is a brokerage firm that specializes in investment portfollios designed to meet the specific risk tolerances of its clients. A client who contacted B&R; this past week has a maximum of $50,000 to invest. B&R;'s investment advisor decides to recommend a portfolio consisting of two investment funds an nternet und and a Blue Chip fun. The internet und has a ro ected annual e mo % while the Blue Chip fund has a projected annual return of 7%. The investment advisor requires that at most $35,000 o the client's funds should be invested in the Internet fund. B&R; services include a nsk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 5 per thousand dollars invested. The Blue Chip fund has a risk rating of 5 per thousand dollars invested. For example, if $10,000 is invested in each of the two investment funds, B&R;'s risk rating for the portfolio would be 5 10 + 5 10 = 100 Finally, B&R; developed a questionnaire to measure each client's risk tolerance. Based on the responses, each client is classified as a conservative, moderate, or aggressive investor. Suppose that the questionnaire results classified the current client as a moderate investor. B&R; recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240.

Explanation / Answer

As you have already figured out the portfolio amount, 30000 in Internet fund and 0 in bluechip, so remaining 20k will sit in his hands giving nothing( would have assumed risk free-rate, if its given).

So, 30k( 60%) of portfolio earns 14% returns, whereas , 20k( 40%) of portfolio earns 0% returns.

Hence, portfolio annual return= .6*14 + .4* 0=8.4%

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