Exercise 2 Suppose a company has $2,000,000 to invest in three different financial instruments: Stock A,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Exercise 2 Suppose a company has $2,000,000 to invest in three different financial instruments: Stock A, Stock B, and Stock C. The expected returns and risk (standard deviation) for each investment are given in the table below: Expected Return Risk (Standard Deviation) Stock A 0.09 Stock B 0.22 Stock C 0.07 Let x1, x2, and x3 represent the amount of money invested in Stock A, Stock B, and Stock C, respectively. The goal is to maximize the expected return while keeping the total investment amount within the available budget. In addition to the budget constraint, let's consider constraints on the minimum and maximum investment in each financial instrument. Suppose there are the following constraints: Budget Constraint: x1+x2+x3=2,000,000 Minimum Investment Constraint for Stock A: The company wants to invest at least $500,000 in Stock A. Minimum and Maximum Investment Constraints for Stock B: The company wants to invest between $100,000 and $300,000 in Stock B Minimum and Maximum Investment Constraints for Stock C: The company wants to invest between $200,000 and $400,000 in Stock C Define the decision variables, objective function, and constraints. Formulate this problem as a Linear Program problem and use MS Excel's Solver to find a solution to the following questions: Questions 1. What is the maximum return found by the Solver? 2. What is the maximum allocation of funds for Stock A found by the Solver? 3. What is the maximum allocation of funds for Stock B found by the Solver? 4. What is the maximum allocation of funds for Stock C found by the Solver? Exercise 2 Suppose a company has $2,000,000 to invest in three different financial instruments: Stock A, Stock B, and Stock C. The expected returns and risk (standard deviation) for each investment are given in the table below: Expected Return Risk (Standard Deviation) Stock A 0.09 Stock B 0.22 Stock C 0.07 Let x1, x2, and x3 represent the amount of money invested in Stock A, Stock B, and Stock C, respectively. The goal is to maximize the expected return while keeping the total investment amount within the available budget. In addition to the budget constraint, let's consider constraints on the minimum and maximum investment in each financial instrument. Suppose there are the following constraints: Budget Constraint: x1+x2+x3=2,000,000 Minimum Investment Constraint for Stock A: The company wants to invest at least $500,000 in Stock A. Minimum and Maximum Investment Constraints for Stock B: The company wants to invest between $100,000 and $300,000 in Stock B Minimum and Maximum Investment Constraints for Stock C: The company wants to invest between $200,000 and $400,000 in Stock C Define the decision variables, objective function, and constraints. Formulate this problem as a Linear Program problem and use MS Excel's Solver to find a solution to the following questions: Questions 1. What is the maximum return found by the Solver? 2. What is the maximum allocation of funds for Stock A found by the Solver? 3. What is the maximum allocation of funds for Stock B found by the Solver? 4. What is the maximum allocation of funds for Stock C found by the Solver?
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Consider the decision tree for a company deciding whether to continue product development as shown below. If the company achieves technical success on its own, what is the expected monetary value of...
-
Reporting Inventory at Lower of Cost or Market Jones Company is preparing the annual financial statements dated December 31, 2012. Ending inventory information about the five major items stocked for...
-
For the plate of Prob. 2.89, determine the tensions in cables AB and AD knowing that the tension in cable AC is 54 N and that the resultant of the forces exerted by the three cables at A must be...
-
Use the statement of cash flows started in Application Problem 18-2. The comparative balance sheet of Flexcor Corporation lists the following long-term liability and its ending balance for the...
-
The cash records and bank statement for the month of May for Diaz Entertainment are shown below. Additional information: a. The difference in the beginning balances in the companys records and the...
-
Matzusure incorporated is authorized to issue 200,000 shares of $4 par common stock. The company issued 73,000 shares at $5 per share. When the market price of common stock was $7.00 per share...
-
Write the Fourier series representation of the periodic function f (t) if in one period: f(t) =t, -n
-
What are the Macroeconomic factors that drive the Mass Merchant Industry? What are the Macroeconomic factors that drive Dollar General (ex. Industrial sector:economic growth, industrial production,...
-
Although there is no one, single model for a strong organizational culture, there are some common characteristics that indicate how healthy a company's culture is. These indicators can be reflected...
-
Carmaker produces small cars. As production emits pollution, Carmaker needs to buy pollution permits. It also needs to hire labour. Carmaker's production function is given by: (1) q = min{0.05L,...
-
Find The domain of the function f ( x ) = sqrt ( ( x 5 ) ( 5 0 x ) )
-
Given the following binary tree, indicate that path for a) pre-order, b) post-order, and c) in-order traversal paths. 8 3 root 2 7
-
Ozzie Foods Ltd produces several varieties of muesli and chocolate bars. An action has been brought against the company by a customer who broke a tooth while eating a muesli bar sold by Ozzie Foods...
-
Multiple Choice Questions: 1. The largest component of aggregate demand is? a. Government purchases. b. Net exports. c. Consumption. d. Investment. 2. A reduction in personal income taxes, other...
-
Gordon Company signed a note payable on November 20. Gordon has a December 31 year-end. It paid the note, including interest, on the maturity date, February 20. What accounts did Gordon debit and...
-
On whom is the FICA tax levied? What does the FICA tax finance?
-
What are two examples of voluntary deductions from an employee's gross pay?
Study smarter with the SolutionInn App