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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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