Question

1. A person invests all of $100,000 in two stocks: Stock A has an expected annual return of 2% and a risk rating of 3 and stock B has an expected annual return of 7% and a risk rating of 9. The risk rating of the total investment is the weighted average of the risk ratings of the two investments. The person wants to maximize 30% of the total and (2) the average risk rating of the total investment be no more than 5.

**PLEASE SHOW ALL YOUR WORK! MAKE IT CLEAR! AND IF YOU
SCAN YOUR PAPER MAKE IT DARKER**

1a) Formula the person’s investment plan as a linear programming problem.

Answer #1

I think there is something missing in the question. In the second last line where there is 'The person wants to maximize 30% of the total', the statement should tell about maximise the returns and restricting the investment in any one stock to maximum of 30%.

Formulation of Linear programming are as follows:

Let the amount to invest in Stock A is 'x' and in Stock B is
'y'.

Objective function (Maximisation) = Z = 0.02 x + 0.07 y

Constraint functions:

x + y <
$100,000

x < 0.30 *
$100,000 i.e. x < $30,000 (If investment
amount to restrict is in Stock A).

y < 0.30 *
$100,000 i.e y <
$30,000 (If investment amount to restrict is in Stock B).

x* 3 + y * 9 < 5
(limiting risk rating).

A person invests all of $100,000 in two stocks: Stock A has an
expected annual return of 2% and a risk rating of 3 and stock B has
an expected annual return of 7% and a risk rating of 9. The risk
rating of the total investment is the weighted average of the risk
ratings of the two investments. The person wants to maximize the
total expected annual returns. However, to reduce risk, he requires
that: (1) investment B be...

1) Suppose you have $100,000 to invest in a PORTFOLIO OF TWO
stocks: Stock A and Stock B. Your analysis of the two stocks led to
the following risk -return statistics:
Expected Annual Return
Beta
Standard Deviation
A
18%
1.4
25%
B
12%
0.6
16%
The expected return on the market portfolio is 7% and the risk
free rate is 1%. You want to create a portfolio with NO MARKET
RISK.
a) How much (IN DOLLARS) should you invest IN...

Consider two stocks, A and B. Stock A has an expected return of
10% and a beta of 1.1. Stock B has an expected return of 16% and a
beta of 1.2. The market degree of risk aversion, A, is 4. The
variance of return on the market portfolio is 0.0175. The risk-free
rate is 5%. Required: (4*2.5 = 10pts) A. What is the expected
return of the market? B. Using the CAPM, calculate the expected
return of stock A....

QUESTION 12
The investor is presented with the two following stocks:
Expected Return
Standard Deviation
Stock A
10%
30%
Stock B
20%
60%
Assume that the correlation coefficient between the stocks is
-1. What is the standard deviation of the return on the portfolio
that invests 30% in stock A?
A.
26%
B.
49%
C.
30%
D.
33%

Eric Poppovich invests money in two stocks for the upcoming
year. His investment is shown below:
STOCK:
# of shares
Price Per Share
Expected Return
Standard Deviation
LBJ Corporation (A)
49.00
$38.51
5.00%
16.00%
Duncan Inc. (B)
29.00
$52.41
10.00%
20.00%
The correlation between LBJ and Duncan is 0.50.
what is the standard deviation of the portfolio?

You decided to create a $100,000 portfolio comprised of two
stocks and a risk-free security. Stock X has an expected return of
13.6 percent and Stock Y has an expected return of 14.7 percent.
You want to put 25% in Stock B. The risk-free rate is 3.6 percent
and the expected return on the market is 12.1 percent. If you want
the portfolio to have an expected return equal to that of the
market, how much should you invest in...

Suppose you collect the information of two
stocks:
Expected Return
Standard Deviation
Beta
Stock A
13%
15%
1.6
Stock B
9.2%
25%
1.1
a. If you have a well-diversified portfolio of 50 stocks and you
are considering adding either Stock A or B to that portfolio, which
one is a riskier addition and why?
If you are a new investor looking for your first stock investment,
which is a riskier investment for you and why?
b. If the...

A winner of the Texas Lotto has decided to invest $50,000 per
year in the stock market. Under consideration are stocks for a
petrochemical firm and a public utility. Although a long-range goal
is to get the highest possible return, some consideration is given
to the risk involved with the stocks. A risk index on a scale of
1-10 (with 10 being the most risky) is assigned to each of the two
stocks. The total risk of the portfolio is...

Expected return on two stocks for two particular market
returns: Please show all work.
Market
Return
Aggressive Stock
Defensive Stock
5%
1%
8%
20%
25%
18%
What are the betas of the two stocks?
What is the expected rate of return on each stock if the market
return is equally likely to be 5% or 20%?
If the T-bill rate is 3% and the market return is equally
likely to be 5% or 20%, draw the SML...

1a. Your investment club has only two stocks in its portfolio.
$50,000 is invested in a stock with a beta of 0.9, and $75,000 is
invested in a stock with a beta of 1.3. What is the portfolio's
beta? Do not round intermediate calculations. Round your answer to
two decimal places.
1b. AA Corporation's stock has a beta of 0.4. The risk-free rate
is 2%, and the expected return on the market is 12%. What is the
required rate of...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 3 minutes ago

asked 3 minutes ago

asked 10 minutes ago

asked 15 minutes ago

asked 16 minutes ago

asked 17 minutes ago

asked 18 minutes ago

asked 22 minutes ago

asked 22 minutes ago

asked 22 minutes ago

asked 22 minutes ago