Provident’s investment advisor recommends a portfolio consisting of two investment funds: the Dynamic fund and the Diversified fund. The Dynamic fund has a projected annual return of 10%, and the Diversified fund has a projected annual return of 8%.

The investment advisor requires that at most P1,400,000 of the client’s funds should be invested in the Dynamic fund. Provident’s services include a risk rating for each investment alternative. The Dynamic fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per P40,000 invested. The Diversified fund has a risk rating of 4 per P40,000 invested. For example, if P400,000 is invested in each of the two investment funds, Provident’s risk rating for the portfolio would be 6(10) + 4(10) = 100.

Finally, Provident developed a questionnaire to measure each client’s risk tolerance. Based on the responses, each client is classified as a conservative, moderate, or aggressive investor. Suppose that the questionnaire results classified the client as a moderate investor. Provident recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240.

a. Formulate a linear programming model to find the best investment strategy for this client.

b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client? What is the annual return for the portfolio?