Your Portfolio Manager Has Suggested Two High-Yielding Stocks: the Altria

question 23

Multiple Choice

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 $7,200 to invest and would like to earn at least $335 in dividends. How many shares (to the nearest whole number) 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 ?

• A)buy 350 shares of MO and 40 shares of RAI for a minimum total risk index of 620
• B) buy 190 shares of MO and 70 shares of RAI for a minimum total risk index of 310
• C) buy 100 shares of MO and 40 shares of RAI for a minimum total risk index of 320
• D) buy 260 shares of MO and 60 shares of RAI for a minimum total risk index of 600
• E) no solution

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Definitions:

Uncollectible Account

A receivable that a company has given up on collecting due to the debtor's inability to pay, also known as a bad debt.

Credit Balance

A situation in a financial account where the amount of money deposited exceeds the money withdrawn, or in accounting, when credits exceed debits in an account.

Credit Sales

Transactions in which goods or services are provided to a customer with an agreement to pay later.

Bad Debt Expense

An expense account reflecting the cost of accounts receivable that a company does not expect to collect and has written off.