A winner of the Florida Lotto has decided to
invest $500,000 per year. Two possible
considerations are an international stock with an
estimated return of 12% and a mutual fund with an
estimated return of 6%. The estimated risk index for
the international fund is 9 while the mutual fund
risk index is only 4. The total risk of the portfolio is
found by multiplying the risk of each account by the
dollars invested in that option. The investor would
like to maximize the return on the investment, but
the average risk index of the portfolio should not be
higher than 6 based on the estimated retirement
date. How much should be invested in each option?
What is the average risk for this investment? What
is the estimated return for the investment?