Best Invest seeks to allocate $10,000 between 3 funds A, B, and C. Best Invest's goal is to achieve the highest possible expected return on the investments when the risk is held to less than equal to 4.00% (or $400). Best Invest has ten quarters of annualized performance data on the three funds that are shown below and provided in the Excel workbook for this quiz.
Quarter Fund A Fund B Fund C
1 9.90% 5.00% 8.70%
2 8.90% 7.70% 20.50%
3 10.10% 5.10% 36.40%
4 2.00% 17.00% -13.30%
5 3.00% 5.90% 11.40%
6 7.10% 11.50% -9.00%
7 5.30 18.00% 5.20%
8 10.40% 12.50% 47.20%
9 10.50% 19.00% -3.40%
10 6.80% 12.50% 17.60%
Which of the following statements is true about this problem?
(Note: Round answers to two significant digits except for covariance values which are rounded to 5 significant digits.)
a. The optimal return is 11.37% or $1137.
b. Less than $1000 will be invested in Fund A.
c. Less than three quarters of the investment is in Fund B.
d. The risk constraint is binding at the optimal solution.
e. Exactly two answers are correct.
f. Exactly three answers are correct.