Your portfolio manager has suggested two high-yielding stocks: The Altria Group (MO) and Reynolds America (RAI)....

Your portfolio manager has suggested two high-yielding stocks: The Altria Group (MO) and Reynolds America (RAI). MO shares cost $50, yield 4.5% in dividends, and have a risk index of 2.0 per share. RAI shares cost $55, yield 5% in dividends, and have a risk index of 3.0 per share. You have up to $11,150 to invest and would like to earn at least $510 in dividends. How many shares (to the nearest tenth of a unit) of each stock should you purchase to meet your requirements and minimize the total risk index for your portfolio? What is the minimum total risk index?

Solutions

Expert Solution

ANswer No of shares of Mo = 9500 / 50 = 190 and RAI = 1650/55 = 30 shares.

Minimum Total Risk will be 2.148

The problem can be solved by using the solver function in excel. The formula used and the solver constraints are also added

The results are

jeff jeffy answered 1 year ago

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