Reference no: EM132941878
ABC Company has a portfolio of investments in shares, bonds and other investment alternatives. Now it has available funds amounting to $200,000 which must be considered for new investments. The four investment alternatives that ABC Company is contemplating are offered in table below.
Financial Details Telefonita Sankander Ferrofial Gamefa
Price per share ($) 100 50 80 40
Annual rate of return 0,12 0,08 0,06 0,10
Measure of risk per $ invested 0,10 0,07 0,05 0,08
The measure of risk indicates uncertainty associated with the share in terms of its capacity to reach the annual return foreseen; the higher the value, the greater the risk. ABC Company has stipulated the annual rate of return from this portfolio must be at least 9 % and no value can represent more than 50 % of the total investment in dollars.
a. Use the linear programming model to develop a portfolio of investments which minimizes the risk.
b. If the firm ignores the risk involved and uses a maximum return strategy on its investment, how will the former model be amended?
(Find the solutions using excel solver and carry out sensitivity analysis)