Problem:
An investor wishes to invest some of all his 12.5 million in a diversified portfolio through a commercial lender. The types of investments, the expected interest per year, and the maximum allowed percentage investment he will consider are shown the following table. He wants at least 35% of his investment to be nonmortgage instruments and no more than 60% to be in high-yield (and high-risk) instruments (i.e., expected interest >8%).
Required:
Question 1) How should his investment be diversified to make the most interest income?
| INVESTMENT |
EXPECTED INTEREST |
Maximun ALLOWED |
| Low-income mortgage |
7.00% |
20% |
| Conventional mortgage Loans |
6.25% |
40% |
| Government sponsored mortgage loans |
8.25% |
25% |
| Bond Investments |
5.75% |
12% |
| Stock investments |
8.75% |
15% |
| Futures trading |
9.50% |
10% |
Solve the given numerical problem and illustrate step by step calculation.