Question

22 Inueshng Dcere ond lo Snck sens fr B113 a share anc has a 3-ycar averaae Canoual vehuyn oA 10 S0ore Thu bete Noatue is le Bocng . Sells br l85 a Share and nas a 3- year overage Gannual verorn of Bal a snare Th beta vaue is 1.19. Jevmaine w ants h spend vo maxe nnan S0UD0 nutshng in huse huo sDcks but shi wants h earn attuast B050n annual veuenue. Jermaine aiso wantS minimzc ask.Delormine mu number Snares of each sok nmat Samaine Sauuld nuy

Answer 1

Trial & Error method:

We will try different possible combinations that will satisfy all the conditions.

Our aim is to earn at least $1050 with as minimum risk as possible. So maximum of Deere & Co. will be purchased.

Different alternatives are as follows:

As per above, most Optimum combination is 59 shares of Derre and 18 shares of Boeing

Number of sh ares of Derr e & Co (assumed) 55 59 62 40 63 35 50 60 56 57 58 Total Investm ent in Derre (no. of shares x$113) 6441 5085 6215 6780 7006 3955 4520 6328 6667 5650 6893 6554 7119 Investment th at can be mad e in Boeing (10000-invest ment in derre) 4350 3446 3220 3107 6045 5480 4915 3785 3333 3672 3559 2994 2881 No. of share s in Boeing th at can be bou ght |(investment t hat can be ma de in boeing/ 185, decimal s ignored) 26 15 18 16 29 17 32 23 20 19 19 18 16 Total Income [(no of share s in derrex$1 0)+(no of shar es in boeingx $26) 1126 1058 1054 1036 1182 1154 1070 1064 1042 1026 1098 1048 1020 61 45

In that case,

Total Investment will be (59×113)+(18×185) = $9997

Annual Return will be (59×10)+(18×26) = $1058

Risk will be [(59×113×0.68)+(18×185×1.19)]/[(59×113)+(18×185)] = 0.85