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Old 02-20-2013, 10:30 AM  
La literatura La literatura is offline
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Smart People: Help me do math homework

How would a person begin to answer this problem?

Quote:
What mix or set of mixes of these individual assets will provide a 6.5% return?

Name
Expected Return
Holding 1
8.50%
Holding 2
9.20%
Holding 3
3.10%
Holding 4
4.80%
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Old 02-20-2013, 10:47 AM   #16
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Quote:
Originally Posted by La literatura View Post
Mostly I'm trying to figure out how you came up with that answer, and how I can come up with other answers.
Hell, maybe I'm oversimplifying it (aka completely ****ing it up)
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Old 02-20-2013, 10:49 AM   #17
La literatura La literatura is offline
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Originally Posted by Canofbier View Post
Yep. If you want a discrete solution, fill in 3 of them and leave the fourth as a variable, and Wolfram will calculate it.
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Old 02-20-2013, 10:49 AM   #18
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Old 02-20-2013, 10:52 AM   #19
DaKCMan AP DaKCMan AP is offline
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There are multiple solutions, but a mix of:

1 - 0.575262544
2 - 0
3 - 0.252042008
4 - 0.172695448

Gives an ER of 0.065.


Solver is your friend. You have 4 unknowns, 2 equations, and conditions on the 4 unknowns.
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Old 02-20-2013, 10:54 AM   #20
La literatura La literatura is offline
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Originally Posted by DaKCMan AP View Post
I'm fairly certain there are multiple solutions, but a mix of:

1 - 0.575262544
2 - 0
3 - 0.252042008
4 - 0.172695448

Gives an ER of 0.065.
Did you figure that out doing the A(1.085)+B(1.092)+C(1.031)+D(1.048)=1.065 or did you use another method?
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Old 02-20-2013, 10:57 AM   #21
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Quote:
Originally Posted by La literatura View Post
Did you figure that out doing the A(1.085)+B(1.092)+C(1.031)+D(1.048)=1.065 or did you use another method?
That's the formula for expected return (you can also use the same formulat without the leading 1's, i.e. A(0.085) + B(0.092)...) and 1 of your two equations.

Your 2nd equation is A + B + C + D = 1.
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Old 02-20-2013, 11:53 AM   #22
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You can use a mix of Investment 1 & I3 or I4 then a mix of I2 plus I3 or I4. That gives you 4 mixes. You can combine any of those solutions to make a fifth.
Use xI1 + (1-x)I3=.65 solve for x.

Substitute any 2 investment options above and below target.
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Old 02-20-2013, 12:14 PM   #23
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It's just a question of weighted averages. You must have at least one of the investments that are higher than 6.5 and at least one of the investments that are less than 6.5. To actually solve this you need more information about total dollars invested, the maximum number of individual investments that can be made or a ratio of dollars invested between funds.
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Old 02-20-2013, 02:36 PM   #24
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If you just average your 4 percentages, you are close to begin with at 6.4%.

So let's say you invest $4000.

25%, or $1000, at each of the 4 rates....

1000 at 8.5% = 85.00
1000 at 9.2% = 92.00
1000 at 3.1% = 31.00
1000 at 4.8% = 48.00

for a total of 256.00.

256.00/4000 = .064 = 6.4%

260.00/4000 = .065 = 6.5%

So therefore you need to find a way to get $4.00 more back on you investment.

I'm going to use the 9.2% and the 4.8% and the 1000.00 at each rate

We made 140 dollars at those two rates combined. We need 144 dollars to get to 260 dollars.

X = amount invested at 9.2%
2000 - X = amount invested at 4.8%

.092X + .048(2000 - X) = 144.00
.092X + 96.00 - .048X = 144.00
.044X = 144.00 - 96.00
.044X = 48.00
X = 48.00/.044
X = 1090.91


2000 - 1090.91 = 909.09

What percent of 1000 is 1090.91?

109.1%

109.1% of your original investment, which was 25%, is

25 times 1.091 = 27.275

What percent of 1000 is 909.09?

90.9%

90.9% of you original investment, which was 25%, is

25 times .909 = 22.725

So, your your percentages to be invested at each rate to give you a 6.5% return...

25% of your money at 8.5%
25% of your money at 3.1%
27.275% of your money at 9.2%
22.725% of your money at 4.8%

This is just one solution, but it will work for any amount that you choose to invest.

Last edited by Coogs; 02-20-2013 at 06:53 PM..
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Old 02-20-2013, 02:36 PM   #25
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reading through this thread makes me realize how stupid I am.
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Old 02-20-2013, 02:47 PM   #26
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You're making this too hard. You don't have to blend all four. It's a lot easier to blend 2 and put it into a simple algebraic equation.

For example, you can use holdings 1 (x) and 3 (y).

x(8.5) + y(3.1) = 6.5% is your equation.

Now, you have to express x in terms of y. Because x+y= 100% (1.00) of your investment, x=1.00-y

Now, you re-write the equation with only the y variable:

(1-y)(8.5)+y(3.1)=6.5

Do the multiplication:

8.5-8.5y+3.1y=6.5

Simplify further

8.5-5.4y=6.5

Subtract 6.5 from both sides of the equation

2-5.4y=0

Add 5.4y to both sides

2=5.4y

Divide both sides by 5.4 to solve for y

.37=y

37% of your investment should be in y. The rest (1-y) should be in x.

Check your work: .37(.031)+.63(.085)=.065
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Old 02-20-2013, 02:53 PM   #27
La literatura La literatura is offline
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reading through this thread makes me realize how stupid I am.
Especially Coog and Saul Good. Give me a history book, and I'll have that subject mastered. Give me a few numbers, and I'll start to sweat.
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Old 02-20-2013, 02:54 PM   #28
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Yikes.
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Old 02-20-2013, 02:56 PM   #29
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no joke there.
my wifre is a wiz at math; but hates history.

I k now enough math do do my taxes and balance a checkbook.
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Old 02-20-2013, 02:58 PM   #30
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The answer is....


4?
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