Question 1201322: Ashley has earmarked at most $950,000 for investment in three mutual funds: a money market fund, an international equity fund, and a growth-and-income fund. The money market fund has a rate of return of 6%/year, the international equity fund has a rate of return of 10%/year, and the growth-and-income fund has a rate of return of 15%/year. Ashley has stipulated that no more than 25% of her total portfolio should be in the growth-and-income fund and that no more than 50% of her total portfolio should be in the international equity fund. To maximize the return on her investment, how much should Ashley invest in each type of fund?
money market fund $
international equity fund $
growth-and-income fund $
What is the maximum return?
Answer by ikleyn(52879)   (Show Source):
You can put this solution on YOUR website! .
Ashley has earmarked at most $950,000 for investment in three mutual funds:
a money market fund, an international equity fund, and a growth-and-income fund.
The money market fund has a rate of return of 6 %/year,
the international equity fund has a rate of return of 10%/year,
and the growth-and-income fund has a rate of return of 15%/year.
Ashley has stipulated that no more than 25% of her total portfolio should be in the growth-and-income fund
and that no more than 50% of her total portfolio should be in the international equity fund.
To maximize the return on her investment, how much should Ashley invest in each type of fund?
money market fund $
international equity fund $
growth-and-income fund $
What is the maximum return?
It is OBVIOUS, that under the given conditions, the most agressive strategy should be applied:
- the maximum possible amount should be invested in the growth-and-income fund
at a rate of return of 15%/year;
- the maximum possible amount should be invested in the international equity fund at 10%/year;
- the rest should be invested in the money market fund at 6%/year.
So, 25% of $950,000 goes at 15% interest per year, or 0.25*950000 = 237500 dollars;
50% of $950,000 goes at 10% interest per year, or 0.50*950000 = 475000 dollars;
25% of $950,000 goes at 6% interest per year, or 0.25*950000 = 237500 dollars.
The maximum return /(interest) is 0.15*237500 + 0.1*475000 + 0.06*237500 = 97375 dollars.
Solved.
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This problem is entirely intended to check a presence of common sense.
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