We have $1000 to invest, and three possible investments - astock index fund, a bond index fund, and a money market.. Averagereturns on the stock index fund, the bond index fund, and the moneymarket fund are 8%, 5%, and 2% respectively.
Total investment in the stock index fund and the bond index fundshould not exceed 80% of available funds. Total investments in thebond index fund and the money market fund should be at least 30% ofthe available funds. And investment in stock index fund should notexceed the sum of investments in the bond index fund and the moneymarket fund.
To maximize our average return, how much should we invest in thestock market fund?
(Hint: decision variables are how much to invest in each of thethree funds)
