An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%
An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%.
The following guidelines have been established:
- No more than 20% in municipal bonds
- Investment in growth stock fund should be greater than other three alternatives.
- At least 10% invested in treasury bills and municipal bonds
- Less should be invested in treasury bills and growth stocks than in CDs and municipal bonds by a ratio of 1.2 to 1.
- All $70,000 should be invested.
Formulate a model and solve it using computer. How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?
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