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    Investing In Stocks: Oil Alaska and Southwest Petroleum

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    Financial Analysts, an investment firm, manages stock portfolios. The firm is considering investing in two stocks for a particular client. The client has a total of $60,000 to invest. Oil Alaska shares cost $30 per share. Southwest Petroleum shares cost $40 per share. Oil Alaska returns $6 per share per year and Southwest Petroleum returns $5 per share per year. Which of the following statements is true about Financial Analysts' portfolio optimization problem? (Assume X1 = Oil Alaska shares and X2 = Southwest Petroleum shares).

    A. The objective function minimizes 30X1 + 40X2

    B. The objective function maximizes 30X1 + 40X2

    C. 30X1 + 40X2 ? 60,000 is a constraint of the problem

    D. 6X1 + 5X2 ? 60,000 is a constraint of the problem

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    Solution Preview

    Dear Student:

    Assuming that X1 = number of Oil Alaska selling at $30 per share and X2 = number of Southwest Petroleum selling at $40 per share, we find the total dollar amount of the client?s investment using the following formula:

    Total Investment in dollars = 30X1 + 40X2
    Maximum investment that ...

    Solution Summary

    The expert examines investing in stocks for Oil Alaska and Southwest Petroleum. The objective function maximizes are determined.