Question

25. INVESTMENT ANALYSIS Jorge has decided to invest at most S100,000 in securities in the form of corporate stocks. He has classified his options into three groups of stocks: blue- chip stocks that he assumes will yield a l0% return (divi- dends and capital appreciation) within a year, growth stocks that he assumes will yield a 15% return within a year, and speculative stocks that he assumes will yield a 20% return (mainly due to capital appreciation) within a year. Because of the relative risks involved in his invest- ment, Jorge has further decided that no more than 30% of his investment should be in growth and speculative stocks and at least 50% of his investment should be in blue-chip and speculative stocks. Determine how much Jorge should invest in each group of stocks in the hope of maximizing the return on his investments.

Answer 1

Jorge Has 100,000$

Now,

For maximizing the return on his investment he should invest into that option which gives him a better return value.

Here growth and speculative stocks has 30% of 100,000$ which is equal to 30,000$.

Which means he can get return value of 15% and 20% according to the options.

And also 50% of investment goes into blue chip means that he will get return value of 10,000$.

Hence Gorge's maximum profit could be arround 15,250$(According to assumption).