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    Operations Research: Group 2

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    YASH BHOJWANI
    The document describes an investment advisory firm that manages client portfolios using an asset allocation model. The firm divides client portfolios among a growth stock fund, income fund, and money market fund, subject to limits on the percentage invested in each. The firm also considers each client's risk tolerance and aims to maximize returns while meeting the client's risk threshold. For a new $800,000 client with maximum risk index of 0.05, the firm aims to determine the optimal allocation between the three funds.

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    © All Rights Reserved
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    Operations Research: Group 2

    Uploaded by

    YASH BHOJWANI
    40 views2 pages
    The document describes an investment advisory firm that manages client portfolios using an asset allocation model. The firm divides client portfolios among a growth stock fund, income fund, and money market fund, subject to limits on the percentage invested in each. The firm also considers each client's risk tolerance and aims to maximize returns while meeting the client's risk threshold. For a new $800,000 client with maximum risk index of 0.05, the firm aims to determine the optimal allocation between the three funds.

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    Group 2 Document

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    The document describes an investment advisory firm that manages client portfolios using an asset allocation model. The firm divides client portfolios among a growth stock fund, income fund, and money market fund, subject to limits on the percentage invested in each. The firm also considers each client's risk tolerance and aims to maximize returns while meeting the client's risk threshold. For a new $800,000 client with maximum risk index of 0.05, the firm aims to determine the optimal allocation between the three funds.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    40 views2 pages

    Operations Research: Group 2

    Uploaded by

    YASH BHOJWANI
    The document describes an investment advisory firm that manages client portfolios using an asset allocation model. The firm divides client portfolios among a growth stock fund, income fund, and money market fund, subject to limits on the percentage invested in each. The firm also considers each client's risk tolerance and aims to maximize returns while meeting the client's risk threshold. For a new $800,000 client with maximum risk index of 0.05, the firm aims to determine the optimal allocation between the three funds.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    OPERATIONS RESEARCH

    Group 2
     J. D. Williams, Inc., is an investment advisory firm that manages more than $120
    million in funds for its numerous clients.

     The company uses an asset allocation model that recommends the portion of each
    client’s portfolio to be invested in a growth stock fund, an income fund, and a money
    market fund.

     To maintain diversity in each client’s portfolio, the firm places limits on the
    percentage of each portfolio that may be invested in each of the three funds.

     General guidelines indicate that the amount invested in the growth fund must
    be between 20% and 40% of the total portfolio value.

     Similar percentages for the other two funds stipulate that between 20% and 50% of
    the total portfolio value must be in the income fund, and at least 30% of the total
    portfolio value must be in the money market fund.

     In addition, the company attempts to assess the risk tolerance of each client and adjust
    the portfolio to meet the needs of the individual investor. For example, Williams just
    contracted with a new client who has $800,000 to invest.

     Based on an evaluation of the client’s risk tolerance, Williams assigned a maximum


    risk index of 0.05 for the client.

     The firm’s risk indicators show the risk of the growth fund at 0.10, the income fund at
    0.07, and the money market fund at 0.01.

     An overall portfolio risk index is computed as a weighted average of the risk rating
    for the three funds where the weights are the fraction of the client’s portfolio invested
    in each of the funds.

     Additionally, Williams is currently forecasting annual yields of 18% for the growth
    fund, 12.5% for the income fund, and 7.5% for the money market fund.

    Formulation

    Decision Variable GF,IF,MMF


    GF Growth Fund
    IF Income Fund
    MMF Money market fund
    Objective Function
    GF + IF + MMF <= 800,000 The constraint for Clint have $800,000 to invest
    GF>=0.2(GF + IF + MMF) The constraint for minimum amount invested on growth fund
    GF<=0.4(GF + IF + MMF) The constraint for maximum amount invested on growth fund
    IF>=0.2(GF + IF + MMF) The constraint for minimum amount invested on income fund
    IF<=0.5(GF + IF + MMF) The constraint for maximum amount invested on income fund
    MF>=0.3(GF + IF + MMF) The constraint for minimum amount invested on money market fund
    0.10GF + 0.07IF + 0.01MMF <= 0.5(GF + IF + MMF) The constraint for maximum risk
    Max Z = 0.18GF + 0.125IF + 0.075MMF The linear programming model for maximizing return

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