Question

Fund A sells at $34 a share and has a 3 year average annual return of $3 per share. The risk measure of standard devation is 19.1. Fund B sells at $46 a share and has a 3 year average annual return of $8 a share. The risk measure of standard deviation is 12.8. Sally burkhardt wants to spend no more than $7000 investing in these two funds, but wants to obtain at least $700 in annual revenue. Sally also wants to minimize her risk. Determin how many shares of stock Sally should by.

Sally should buy _ shares of Fund A and _ shares of Fund B

Answer 1

		A	B
	Price	34	46
	Return	3	8
	% Return	8.82%	17.39%
	SD	19.1	12.8
	Total Return Required =			700/7000 x 100
				10%
	Return on portfolio =		10%
	Wa x 8.82% + Wb x 17.39% =		10%
	Wa x *.82% + (1- wb) 17.39% =		10%
	8.82Wa +17.39 - 17.39Wa =		10%
	-8.57 Wa + 17.39 =		10%
	-8.57 Wa		-7.39%
	Wa =		86.27%
	No. of shares of A =	7000 x 86.26% / 34 =	177.61
	Wb =	(7000-wa)	13.73%
	No. of shares of B =	7000 x 13.73%/46 =	20.90
	Fund	Shares	Return per share	Total Return
	A	177.61	3	532.84
	B	20.90	8	167.16
				700.00