Investment Advisors Inc. is a brokerage firm that manages stockportfolios for a
number of clients. A particular portfolio consists of U sharesof US Oil and H shares of
Huber Steel. The annual return for US oil is $3 per share andthe annual return for Huber
Steel is $5 per share. US Oil sells for $25 per share and HuberSteel sells for $50 per
share. The portfolio has $80,000 to be invested. A risk index isused to control risk. The
risk is 0.50 per share of US Oil and 0.25 per share of HuberSteel. The risk for the
portfolio can be at most 700. In addition, the portfolio islimited to a maximum of 1000
shares of US Oil.
Question:
The computer solution of this problem is shown in Figure3.14.
a. What is the optimal solution, and what is the value of the totalannual return?
b. Which constraints are binding? What is your interpretation ofthese constraints in
terms of the problem?
c. What are the dual values for the constraints? Interpreteach.
d. Would it be bene?cial to increase the maximum amount invested inU.S. Oil? Why or
why not?
Please offer step by step solution
Investment Advisors Inc. is a brokerage firm that manages stockportfolios for a
number of clients. A particular portfolio consists of U sharesof US Oil and H shares of
Huber Steel. The annual return for US oil is $3 per share andthe annual return for Huber
Steel is $5 per share. US Oil sells for $25 per share and HuberSteel sells for $50 per
share. The portfolio has $80,000 to be invested. A risk index isused to control risk. The
risk is 0.50 per share of US Oil and 0.25 per share of HuberSteel. The risk for the
portfolio can be at most 700. In addition, the portfolio islimited to a maximum of 1000
shares of US Oil.
Question:
The computer solution of this problem is shown in Figure3.14.
a. What is the optimal solution, and what is the value of the totalannual return?
b. Which constraints are binding? What is your interpretation ofthese constraints in
terms of the problem?
c. What are the dual values for the constraints? Interpreteach.
d. Would it be bene?cial to increase the maximum amount invested inU.S. Oil? Why or
why not?
Please offer step by step solution