1. identify and apply the appropriate linear model, 2. explain how this model was selected, and 3. identify a best-case scenario from a generated selection of sensitivity profiles.
Theo Harris earns $55,000 a year and has $9,000 to invest in a portfolio. His investment alternatives and their expected returns are shown in the table below.
|
Investment
|
Description
|
Expected Return
|
|
A
|
IRA (retirement)
|
3.5%
|
|
B
|
Employer's retirement plan
|
4.5%
|
|
C
|
Deferred income (retirement)
|
8.0%
|
|
D
|
Unity mutual fund
|
7.0%
|
|
E
|
Liberty mutual fund
|
7.5%
|
|
F
|
Money market
|
5.5%
|
Theo's investment goals are as follows and can be ranked according to the weights shown in parenthesis.
Question 1: Which investments should be included in Theo's portfolio
Question 2: How much should he invest in each?
Goal 1: (25) Invest all funds available.
Goal 2: (20) Maximize the total annual return in dollars, with a target of $1,000.
Goal 3: (15) Invest at least 3% of salary in employer's retirement plan.
Goal 4: (15) Invest at least 10% of the total investment in the money market.
Goal 5: (10) Invest at most 25% of the total investment in retirement plans.
Goal 6: (10) Invest at least 50% of the total investment in non-retirement plans.
Goal 7: (5) Invest at most 50% of the total investment in mutual funds.
Question 3: Which investments should be included in Theo's portfolio?