Investment Advisors Inc., is a brokerage firm that manages stock portfolios for a number of clients. A new client has requested that the firm handle an $80,000 investment portfolio. As an initial investment strategy, the client would like to restrict the portfolio to a mix of the following two stocks. (Use Excel Solver)
Estimated Annual Risk
Stock Price share Return/Share Index/Share
U.S. Oil $25 $3 0.50
Hub Properties $50 $5 0.25
The risk index for the stock is a rating of the relative risk of the two investment alternatives. For the data given, U.S. Oil is judged to be the riskier investment. The investment firm avoids placing excessive high-risk investment. For the current portfolio, an upper limit of 700 has been set for the total risk index. The firm has also set an upper limit of 1000 shares for the U.S. Oil stock. How many shares of each stock should be purchased to maximize the total annual return?