A financial investor considers a set of stocks and bonds with different risks and rates of return. She wishes to select a mixture of three stocks and three bonds that will m return subject to certain minimum risk standards. The investor allocates $30,000 toward this fund. After careful analysis, she decides that 1. At least 50% of the fund should be in stocks. 2. No more than 20% should be in junk bonds. 3. At least 10% should be in Treasury bonds. 4. At least 15% of the fund should be in municipal bonds. The estimated returns of the six securities are: Security Return (%) D-s Stock A 12.0 Find the optimal allocation of $30,000. (The sum of A, B, C, D, E and F should be 30,000.) A=S B=$ C=S F-SE Stock B 17.0 F-SI Stock C 15.0 T Bond (D) 7.5 Junk Bond (E) 8.5
A financial investor considers a set of stocks and bonds with different risks and rates of return. She wishes to select a mixture of three stocks and three bonds that will m return subject to certain minimum risk standards. The investor allocates $30,000 toward this fund. After careful analysis, she decides that 1. At least 50% of the fund should be in stocks. 2. No more than 20% should be in junk bonds. 3. At least 10% should be in Treasury bonds. 4. At least 15% of the fund should be in municipal bonds. The estimated returns of the six securities are: Security Return (%) D-s Stock A 12.0 Find the optimal allocation of $30,000. (The sum of A, B, C, D, E and F should be 30,000.) A=S B=$ C=S F-SE Stock B 17.0 F-SI Stock C 15.0 T Bond (D) 7.5 Junk Bond (E) 8.5
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A financial investor considers a set of stocks and bonds with different risks and rates of return. She wishes to select a mixture of three stocks and three bonds that will maximize her expected rate of
return subject to certain minimum risk standards. The investor allocates $30,000 toward this fund. After careful analysis, she decides that
1. At least 50% of the fund should be in stocks.
2. No more than 20% should be in junk bonds.
3. At least 10% should be in Treasury bonds.
4. At least 15% of the fund should be in municipal bonds.
The estimated returns of the six securities are:
Security
Return (%)
Stock A
12.0
Stock B
17.0
Find the optimal allocation of $30,000. (The sum of A, B, C, D, E and F should be 30,000.)
A=S
B = $
C=S
D=$
E=$
F=$
Stock C
15.0
T Bond (D)
7.5
Junk Bond (E)
8.5
Municipal Bond (F)
6.6
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