You are an Independent Computing Financial Advisor providing independent expert advice to individuals on request. A client has £130,000 which she wishes to invest in income-generating shares and government bonds so as to maximise her annual income. She has selected five possible investments, all of which she considers to have reasonably high levels of income and security:
·Unit trust A, with an expected annual return of 9% pa.
·Unit trust B, with an expected annual return of 7.7% pa.
·FTSE 100 share A, paying an anticipated 5% annual dividend.
·FTSE 100 share B, paying an anticipated 6.2% annual dividend.
·Gilts (Government bonds) paying 5.5% annual interest.
Since she has no plans to sell her investments in the near future, she is not concerned with their capital value (i.e. their selling price). Based on the various risk levels involved, she has made the following decisions:
·The total investment in unit trusts may not exceed £50,000.
·The total investment in FTSE 100 shares may not exceed £45,000.
·The investment in unit trust A may not exceed £25,000.
·The investment in FTSE 100 share A may not exceed £30,000.
·The total investment in unit trusts may not exceed the total investment in FTSE 100 shares.
·The investment in unit trust A and FTSE 100 share A combined may not exceed the investment in Gilts.
As the client’s financial adviser you should advise her of the amount of money she should invest in the various investments in order to maximise her annual income.