Question
You own and run an investment advising firm that manages asset portfolio for its clients. A client wants to invest a total of $80,000 in
You own and run an investment advising firm that manages asset portfolio for its clients. A client wants to invest a total of $80,000 in two stocks: Eastern Oil and Global Properties. Price per share is $25 for Eastern Oil and $50 for Global properties. Their estimated annual returns per share respectively are: $3 and $5; their respective risk indices per share are 0.5 and 0.25 (a higher value indicates a higher risk). By constraining the total risk for the portfolio, the investment firm avoids placing excessive amounts of the portfolio in high-risk stocks. For this customers portfolio, an upper limit of 700 has been set for the total risk index of all investments. You also have set an upper limit of 1000 shares in more risky Eastern Oil stock. How many shares of each stock should you recommend being placed in her portfolio to maximize the annual return? A Formulate the problem B Solve the problem in Excel C Fill out the recommendation: Based on the Excel results, to maximize returns you should recommend to have ____ Eastern Oil stocks and _____ Global Properties stocks in the clients portfolio. With this plan from you the portfolio has a maximum return of $___________.
A Formulate the problem, what are the
B Solve the problem in Excel
C Fill out the recommendation: Based on the Excel results, to maximize returns you should recommend to have ____ Eastern Oil stocks and _____ Global Properties stocks in the clients portfolio. With this plan from you the portfolio has a maximum return of $___________.
Can you tell me if what I have in the table is correct?
| New Problem: Investment Advising Firm |
What you trying to optimize (i.e., Maximize or Minimize)? (That is what is your objective) | To maximize annual return |
What you are trying to decide? (That is, what are your decision variables?) | How many shares of each stock should be recommended for her portfolio? investing $80,000 total |
How much each of these variables contributes to your objective? | Estimated annual returns per share: Eastern Oil: $3 Global Properties: $ 5 |
How much resources each variables consume or take up? | Price per share: Eastern Oil: $25 Global Properties: $50 |
What is stopping you from offering infinite (read: a huge) number of both surgeries so that you can make a killing? | Limitied investment money and risk index, stock max constraints: Funds available ($80,000) Limit of 700 for total risk index of all investments: Risk index for Eastern oil (0.25) Risk index for Global Prop. (0.25) Limit of 1000 for riskier Eastern oil stock max |
Is there any special requirements that you decision has to satisfy? (For example, you have to offer at least 20 nose surgeries due to an agreement with county government ) | None? |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started