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

Question

A financier plans to invest up to $875,000 in two projects. Project A yields a return of 10% on the investment, whereas Project B yields a return of 15% on the investment. Because the investment in Project B is riskier than the investment in Project A, the financier has decided that the investment in Project B should not exceed 40% of the total investment. How much should she invest in each project to maximize the return on her investment?

Project A $                  

Project B $                  

 

What is the maximum return?

$                    

Answer 1

Since Project B has the greater return on investment, ideally you would want all of the money invested into that one, but since you can't exceed 40% into Project B, invest the maximum into Project B and the rest in Project A.