An investor has $80,000 to invest in Certificates of Deposit (CD) and a mutual fund. The CD yields 7% and the mutual fund yields 8%. The mutual fund requires a minimum investment of $8,000 and the investor requires at least twice as much should be invested in CDs as in the mutual fund. How much should be invested in each to maximize the return? What is the maximum return? Show your work and explanations setting this problem up. Variables should clearly be defined. Show all your work.

An investor has $80,000 to invest in Certificates of Deposit (CD) and a mutual fund. The CD yields 7% and the mutual fund yields 8%. The mutual fund requires a minimum investment of $8,000 and the investor requires at least twice as much should be invested in CDs as in the mutual fund. How much should be invested in each to maximize the return? What is the maximum return? Show your work and explanations setting this problem up. Variables should clearly be defined. Show all your work.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 2FPE

See similar textbooks

Similar questions

An investor has $80,000 to invest in a CD and a mutual fund. The CD yields 8% and the mutual fund yields 7%. The mutual fund requires a minimum investment of $9,000, and the investor requires that at least twice as much should be invested in CDs as in the mutual fund. How much should be invested in CDs and how much in the mutual fund to maximize the return? What is the maximum return? To maximize income, the investor should place $ in CDs and $ in the mutual fund. (Round to the nearest dollar as needed.)
3) Suppose the value function v(.) of an investment fund manager is defined by: v(x) = x for gains and v(x) = -2|x| for losses. Yesterday, the fund manager had a good day: their investments earned $15m. Today, the fund manager had a bad day: their investments lost $10m. a) What is the fund manager's value if they integrate the investment returns for the two days? b) What is the fund manager's value if they evaluate the investment returns for the two days separately? c) Discuss how an investor's information evaluation horizon (i.e., frequent vs infrequent) might affect their investment strategy.
Suppose you have recently accepted a new job and are setting up your retirement allocations within the firm's 401k plan. The plan options contain two risky mutual funds, A and B. You may assume that all fees are the same across the two funds. Fund A has an expected return of 6% and the standard deviation of returns is 12%. Fund B has an expected return of 7% and the standard deviation of returns is 15%. The correlation between returns on the two funds is 0. The plan also contains a Treasury fund which provides a risk-free return of 3%. A Suppose you can only invest in one of the two risky mutual funds (A or B), but can combine it with the Treasury fund in any proportions you wish. Which of the two mutual funds would you choose and why B Maintaining the restrictions on your investment choices from the last question, what is the best expected return you could achieve if you set up a portfolio with a standard deviation of returns equal to 10%? (Please express your answer in percentage…
A mutual fund that aggressively seeks capital growth: # O A. will have an MER that is higher than a global fund. OB. will have an MER that is approximately the same as a T-bill fund. OC. will have an MER that reflects the increased costs of research. OD. will have an MR similar to that of a fixed-income fund.
Solve the problems listed below. Show your solution and box the final answer. (bond or yellow paper) 1. A fund is set up to charge a load. Its net asset value is P16.50 and its offer price is P17.30. A. How much is the commission of the load? B. What percentage of the offer price does the commission represent? C. What percentage of the net asset value does the commission represent? D. Assume the fund increased in value by .30 the first month after you purchased 100 shares. What is the total gain or loss? Compare the total current value with the total purchase amount. E. By what percentage would the net asset value of the shares have to increase for you to break even? 2. Under peso-cost averaging, an investor will purchase P6,000 worth of stock each year for three years. The stock price is P40 in year 1, P30 in year 2 and P48 in year 3. A. What is the share purchased in every year? B. Compute the average price per share. C. Compute the average cost per share. 3. Under peso-cost…
An investor has $80,000 to invest in a CD and a mutual fund. The CD yields 6% and the mutual fund yields 5%. The mutual fund requires a minimum investment of $9,000, and the investor requires that at least twice as much should be invested in CDs as in the mutual fund. How much should be invested in CDs and how much in the mutual fund to maximize the return? What is the maximum return?
Assume the risk-free rate is 4%. You are a financial advisor, and must choose one of the funds below to recommend to each of your clients. Whichever fund you recommend, your clients will then combine it with risk-free borrowing and lending depending on their desired level of risk. Expected Return Volatility Fund A 7% 3% Fund B 10% 4% Fund C 9% 4% Which fund would you recommend without knowing your client's risk preference?
Your broker has suggested that you diversify your investments by splitting your portfolio among mutual funds, municipal bond funds, stocks, and precious metals. They suggest three good mutual funds, five municipal bond funds, five stocks, and three precious metals (gold, silver, and platinum). How many different portfolios can you create if the portfolio is to contain one of each type of investment?
3. Consider an individual who has the possibility of investing an amount t in period 1 in a fund that gives an amount s in period 2. (a) If the interest rate r is positive, what would be the smallest s so that it is optimal for the consumer to accept that investment? (b) If t = 100 and s = 115, what is the highest interest rate at which the individual is willing to invest in that fund?
Suppose you have a medium risk-tolerance, and you want an annual return of $355. You decide to invest part in Fund A and the rest in Fund B. How much do you need to invest in Fund A? $ . Round to the nearest cent. Appreciate it thanks!!@@
You plan to invest in either a mutual fund X or mutual fund Y. The following information about the annual return (%) of each of these investments under different demand levels is available, along with the probability that each of these states of nature will OCcur: Demand Probability Fund X Fund Y High 0.4 30% 25% Medium 0.4 22% 34% low 0.2 17% 25% a) Compute expected return, standard deviation for each investment and covariance of the mutual fund X and mutual fund Y. b) Would you invest in the mutual fund X or Y? Explain. c) If you chose to invest in mutual fund X and the state of nature turns up to be the low demand, what do you think about the possibility of the opportunity loss of 8% in comparison to investing in mutual fund Y?
As an individual investor, you have three funds to invest into. The first is an equity fund, the second is a corporate bond fund, and the third is a T-bill money-market fund (your risk-free asset). Fund Expected rate of return Risk (Standard deviation) Equity fund 16% 32% Corporate bond fund 12% 18% T-bill money market fund 2% Correlation between equity fund and bond fund returns is 0.4. Find the Expected return of the minimum variance portfolio formed from Equity and Bond funds