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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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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.

See Also This Related BrainMass Solution

Setting up an investment optimization problem

Financial Analysts, Inc. is an investment firm that manages stock portfolios for a number of clients. A new client has just requested that the firm handle an $80,000 portfolio. As an initial investment strategy the client would like to restrict the portfolio to a mix of the following two stocks:

Stock: Oil Alaska
Price/share: $50
Estimates annual return/share: $6
Maximum possible investment: $50,000

Stock: Southwest Petroleum
Price/share: $30
Estimates annual return/share: $4
Maximum possible investment: $45,000

Let x = number of shares of Oil Alaska and y = number of shares of Southwest Petroleum

Part A: Develop the objective function, assuming that the client desires to maximize the total annual return
Part B: Show the mathematical expression for each of the following three constraints:
1. Total investment funds available are $80,000
2. Maximum Oil Alaska investment is $50,000
3. Maximum Southwest Petroleum investment is $45,000

Note: this problem only sets up the problem. It does not solve for x and y.

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