How much should the financier invest in each project in order to maximize the return on her investment?

Question

A financier plans to invest up to $500,000 in two projects. Project A yields a return of 12% on the investment of x dollars, whereas Project B yields a return of 15% on the investment of y dollars. 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 40% of the total investment. How much should the financier invest in each project in order to maximize the return on her investment?

 

(x,y)= (       ?,     ?       )

 

What is the maximum return?

                

Answer 1

The allocation would be

Project A   =   $300,000

Project b   =    $200,000

 

 

Expected return at this mix would be $66,000

Maximum return would be $75,000 which violates the 40% conservative rule.