Case Study 1: Portfolio Selection

Goals:Select a portfolio package from a set of alternative investments; and maximisation of the expected annual return based on available capital and company's policy.

Problem data:

Investment

Expected annual rate of return (%)

Share A - Manufacturing Sector

15.4

Share B - Manufacturing Sector

19.2

Share C - Food and Beverage Sector

18.7

Share D - Food and Beverage Sector

13.5

Mutual Fund E

17.8

Mutual Fund Z

16.3

Requirements:

a.Total amount is $ 90,000.

b.Amount in shares of a sector no larger than 50% of total available.

c.Amount in shares with the larger return of a sector less or equal to 80% of sector's total amount.

d.Amount in manufacturing company less or equal to 10% of the whole share amount.

e.Amount in mutual funds less or equal to 25% of the amount in manufacturing shares.