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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.

$2.19
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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