Reference no: EM13338039
A Financial Institution carries an investment portfolio of avariety of stock, bonds and other investment alternative. Currently$200,000 of funds are available and mush be considered for newinvestment opportunities. The four stock options underconsideration and the relevant financial data are as follows:
Financial Data S1 S2 S3 S4
Price pershare $100 $50 $80 $40
Annual rate ofreturn 0.12 0.08 0.06 0.10
Risk measure per dollar invested 0.10 0.07 0.05 0.08
The risk measure indicates the relative uncertainly associated withthe stock in term of it's realizing the projected annual return;higher value indicate greater risk. The risk measures are providedby the firm's top financial advisor.
The company's top management has stipulated the followinginvestment guidelines:
- The annual rate of return for the portfolio must be at least6%
- No one stock can account for more than 30% of the total dollarinvestment
1. Use liner programming to develop an investment portfolio thatminimize risk
2. If the firm ignores risk and uses a maximum return-on-investmentstrategy, what is the investment portfolio?
3. What is the dollar difference between the portfolio recommendedin part (1) and (2)?
4. Which one of the two model the company might prefer?
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