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7 - 2 0 A winner of the Texas Lotto has decided to invest $ 5 0 , 0 0 0 per year in the
A winner of the Texas Lotto has decided to invest
$ per year in the stock market. Under con
sideration are stocks for a petrochemical firm and a
public utility. Although a longrange goal is to get
the highest possible return, some consideration is
given to the risk involved with the stocks. A risk in
dex on a scale of with being the most risky
is assigned to each of the two stocks. The total risk
of the portfolio is found by multiplying the risk of
each stock by the dollars invested in that stock.
The following table provides a summary of the
return and risk:
The investor would like to maximize the return on
the investment, but the average risk index of the in
vestment should not be higher than How much
should be invested in each stock? What is the aver
age risk for this investment? What is the estimated
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