Scribd Logo
Upload

Welcome to Scribd!

  • 593 views

    Case Study Annabelle

    Uploaded by

    jain_piyush13
    Annabelle has $120,000 to invest from savings and wants to allocate it between an S&P 500 index fund and an internet stock fund. She wants to balance risk by investing at least 1/3 as much in the index fund and no more than twice as much in the internet fund. Given the share prices and past returns, how should she allocate her money to maximize one-year return? Changing the risk balancing restrictions could affect the optimal allocation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    Case Study Annabelle

    Uploaded by

    jain_piyush13
    593 views2 pages
    Annabelle has $120,000 to invest from savings and wants to allocate it between an S&P 500 index fund and an internet stock fund. She wants to balance risk by investing at least 1/3 as much in the index fund and no more than twice as much in the internet fund. Given the share prices and past returns, how should she allocate her money to maximize one-year return? Changing the risk balancing restrictions could affect the optimal allocation.

    Original Description:

    annabelle case

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Annabelle has $120,000 to invest from savings and wants to allocate it between an S&P 500 index fund and an internet stock fund. She wants to balance risk by investing at least 1/3 as much in the index fund and no more than twice as much in the internet fund. Given the share prices and past returns, how should she allocate her money to maximize one-year return? Changing the risk balancing restrictions could affect the optimal allocation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    593 views2 pages

    Case Study Annabelle

    Uploaded by

    jain_piyush13
    Annabelle has $120,000 to invest from savings and wants to allocate it between an S&P 500 index fund and an internet stock fund. She wants to balance risk by investing at least 1/3 as much in the index fund and no more than twice as much in the internet fund. Given the share prices and past returns, how should she allocate her money to maximize one-year return? Changing the risk balancing restrictions could affect the optimal allocation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    CASE STUDY ANNABELLE INVESTMENT IN THE MARKET

    Annabelle Sizemore has cashed in some treasury bonds and a life insurance policy that her parents had accumulated over the years for her. She has also saved some money in certificates of deposit and savings bonds during the 10 years since she graduated from college. As a result, she has $120,000 available to invest. Given the recent rise in the stock market, she feels that she should invest all of this amount there. She has researched the market and has decided that she wants to invest in an index fund tied to S&P stocks and in an Internet stock fund. However, she is very concerned about the volatile of Internet stocks. Therefore, she wants to balance her risk to some degree. She has decided to select an index fund from Shield Securities and an Internet stock fund from Madison Funds, Inc. She has also decided that the proportion of the dollar amount she invests in the index fund relative to the Internet fund should be at least one-third but that she should not invest more than twice the amount in the Internet fund that she invests in the index fund. The price per share of the index fund is $175, whereas the price per share of the Internet fund is $208. The average annual return during the last 3 years for the index fund has been 17%, and for the Internet stock fund it has been 28%. She anticipates that both mutual funds will realize the same average returns for the coming year that they have in the recent past; however, at the end of the year she is likely to re-evaluate her investment strategy anyway. Thus, she wants to develop an investment strategy that will maximize her return for the coming year. (a) Formulate a linear programming model for Annabelle that will indicate how much money she should invest in each fund and solve this model (by Simplex Method). (b) Suppose Annabelle decides to change her risk-balancing formula by eliminating the restriction that the proportion of the amount she invests in the index fund to the amount that she invests in the Internet fund must be at least one-third. What will the effect be on her solution? Suppose instead that she
    1

    eliminates the restriction that the proportion of money she invests in the Internet fund relative to the stock fund not exceeds a ratio of 2 to 1. How will this affect her solution? (c) If Annabelle can get $1 more to invest, how will that affect her solution? $2 more? $3 more? What can you say about her return on her investment strategy, given these successive changes?

    You might also like