Question

A financier plans to invest up to $600,000 in two projects. Project A yields a return...

A financier plans to invest up to $600,000 in two projects. Project A yields a return of 10% on the investment, whereas project B yields a return of 13% on the investment. Because the investment in project B is riskier than the investment in project A, she has decided that the investment in project B should not exceed 35% of the total investment. How much should the financier invest in each project in order to maximize the return on her investment?

project A   $
project B   $


What is the maximum return?
$  

Homework Answers

Answer #1

The Total investment = $600,000

Project A Yield = 10%

Project B Yield = 13%

Maximum Percentage that Could be invested in B = 35%

The Yield of Project B is More than Project B So, In order to maximise the return we will invest in Project B at maximum level.

Project B Investment = 600,000 * 35%

= $210,000

Project A investment = Total Investment - Project B investment

= 600,000 - 210,000

= $390,000

The Maximum Return = Amount Invested in Project A * Yield rate + Amount Invested in Project B * Yield rate

= 210,000 * 10% + 390,000 * 13%

= 21000 + 50700

= $71700

So, The maximum return is $71,700

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