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Brokerage Firm Accounting Worksheet

Brokerage Firm Accounting Worksheet

Brokerage Firm Accounting Worksheet

Description

Blair & Rosen, Inc. (B&R) is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted B&R this past week has a maximum of $50,000 to invest. B&R’s investment advisor decides to recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 14%, and the Blue Chip fund has a projected annual return of 7%. The investment advisor requires that at most $35,000 of the client’s funds should be invested in the Internet fund. B&R services include a risk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 5 per thousand dollars invested. The Blue Chip fund has a risk rating of 5 per thousand dollars invested. For example, if $10,000 is invested in each of the two investment funds, B&R’s risk rating for the portfolio would be 5(10) + 5(10) = 100. Finally, B&R developed a questionnaire to measure each client’s risk tolerance. Based on the responses, each client is classified as a conservative, moderate, or aggressive investor. Suppose that the questionnaire results classified the current client as a moderate investor. B&R recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240.

(a) Formulate a linear programming model to find the best investment strategy for this client.
Let I = Internet fund investment in thousands
B = Blue Chip fund investment in thousands
If required, round your answers to two decimal places. If an amount is zero, enter . If the constant is “1” it must be entered in the box.
I + B
s.t.
I + B $ Available investment funds
I + B $ Maximum investment in the internet fund
I + B Maximum risk for a moderate investor
I, B
(b) Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client?
Internet Fund = $
Blue Chip Fund = $
What is the annual return for the portfolio?
$
(c) Suppose that a second client with $50,000 to invest has been classified as an aggressive investor. B&R recommends that the maximum portfolio risk rating for an aggressive investor is 340. What is the recommended investment portfolio for this aggressive investor?
Internet Fund = $
Blue Chip Fund = $
Annual Return = $
(d) Suppose that a third client with $50,000 to invest has been classified as a conservative investor. B&R recommends that the maximum portfolio risk rating for a conservative investor is 150. Develop the recommended investment portfolio for the conservative investor. If an amount is zero, enter .
Internet Fund = $
Blue Chip Fund = $
Annual Return = $
Explanation & Answer:

Worksheet

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