An investor plans to supplement retirement income with stock dividends and does not want the total dividend amount to vary greatly year to year. lnitially, assume that there are only two stocks to choose from and that each costs $100 per share. The variance of dividend payments from stock 1 is $25 per share, while the variance for stuck 2 is only $9. Dividend payments for the two stocks are uncorrelated A total of $10,000 is to be invested. To minimize variance of total stock dividends.
(a) How much of each stock should be purchased? (Hint: Develop a small mathematical programming model and solve by trial and error)(b) Write a generalized (multistock) mathematical programming model. What technique would you use to solve this larger model?
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