(Solution) IE 460 Extra Credit - Financial Engineering (Sharpe's LP Model) To Be Done Individually. (Due April 27, 2015) Sharpe's Portfolio Optimization Model... | Snapessays.com


(Solution) IE 460 Extra Credit - Financial Engineering (Sharpe's LP Model) To be done individually. (Due April 27, 2015) Sharpe's Portfolio Optimization Model...


Hello,

 

 

I need help with this problem. It involves financial engineering. I hope you can help with it :)IE 460

 

Extra Credit - Financial Engineering (Sharpe’s LP Model)

 

To be done individually. (Due April 27, 2015)

 

Sharpe’s Portfolio Optimization Model

 

An investor has $100,000 to invest in mutual funds.

 

She has identified 10 funds for

 

possible investment.

 

Type of Fund

 

Average Annual

 

Return

 

Beta Risk

 

Growth Funds

 

Fund 1

 

30%

 

1.4

 

Fund 2

 

20%

 

1.2

 

Fund 3

 

15%

 

1.0

 

Fund 4

 

25%

 

1.3

 

Growth and Income Funds

 

Fund 5

 

16%

 

0.9

 

Fund 6

 

17%

 

0.95

 

Fund 7

 

12%

 

0.75

 

Income funds

 

Fund 8

 

8.0

 

0.6

 

Fund 9

 

6.0

 

0.4

 

Money Market Fund

 

Fund 10

 

4.0

 

0.0

 

Even though the investor is interested in the “Growth” of her portfolio, she has the following

 

investment restrictions.

 

(i)

 

No more than $20,000 should be invested in any one fund.

 

(ii)

 

Between 20 and 40% should be invested in growth funds.

 

(iii)

 

At least $5,000 should be available as ready cash in the money market fund.

 

(iv)

 

At least 10% should be invested in income funds.

 

(v)

 

At least 15% should be invested in growth and income funds.

 

Formulate the problem of determining the optimal investment portfolio as a bi-criteria problem if

 

the objectives were to maximize portfolio return and minimize portfolio’s Beta Risk.

 

You must

 

define all your variables clearly, and write out the constraints and the objective functions.

 


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This question was answered on: May 23, 2022

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