# Theo’s portfolio

• I don’t need the problem solved, I want to know how did this person come up with this answer from this question?

If we remove the goal 7, we see that the Return is increased to \$610.5.

If we remove the goal 6, 7, we see that the Return is increased to \$610.5.

If we remove the goal 5,6,7, we see that the Return is increased to \$639.75.

If we remove the goal 4,5,6,7, we see that the Return is increased to \$662.25.

If we remove the goal 3,4,5,6,7, we see that the Return is increased to \$720.

My book said the answer was below, was his answer correct above or the book someone please explain. I just want to know why there are two answers.

The Answer

Invest \$1,650 in investment B, \$600 in investment C, \$4,500 in investment E and \$2,250 in investment F. Return is \$583.50. Goals 1, 3, 5 and 7 are fully met. Goal 2 is underachieved by \$416.50. Goal 4 is overachieved by \$1,350. Goal 6 is overachieved by \$2,250.

• 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. Which investments should be included in Theo’s portfolio, and 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.

Which investments should be included in Theo’s portfolio?