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

question 122

Short Answer

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 $15,750 to invest and would like to earn at least $722.5 in dividends.
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How many shares (to the nearest whole number) of each stock should you purchase to meet your requirements and minimize the total risk index for your portfolio
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If no optimal solution exists enter no solution in each box.
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Number of shares of MO = __________
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Number of shares of RAI = __________
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What is the minimum total risk index
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$ __________

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Definitions:

Quasilinear Preferences

A type of preference where utility is linear in one argument, allowing indifference curves to have the same slope regardless of the level of consumption of other goods.

Equivalent Variation

A measure used in economics to evaluate the change in wealth that would leave an individual's utility unchanged before and after a policy change or a price change.

Compensating Variation

A monetary measure of the amount of money a consumer would need to reach their original utility level after a price change.

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.