Andrew Is Ready to Invest $200,000 in Stocks and He

question 9

Essay

Andrew is ready to invest $200,000 in stocks and he has been provided nine different alternatives by his financial consultant. The following stocks belong to three different industrial sectors and each sector has three varieties of stocks each with different expected rate of return. The average rate of return taken for the past ten years is provided with each of the nine stocks. $$\begin{array} { l c c } \text { Stock } & \text { Industry } & \text { Annual Return } \\\hline 1 & \text { Airlines } & 18.24 \% \\2 & \text { Airlines } & 28.75 \% \\3 & \text { Arrlines } & 11.08 \% \\4 & \text { Banking } & 20.12 \% \\5 & \text { Banking } & 14.00 \% \\6 & \text { Banking } & 26.17 \% \\7 & \text { Agriculture } & 23.67 \% \\8 & \text { Agriculture } & 18.25 \% \\9 & \text { Agriculture } & 16.50 \%\end{array}$$ ​
The decision will be based on the constraints provided below:
o Exactly 5 alternatives should be chosen.
o One stock can have a maximum invest of $55,000.
o Any stock chosen must have a minimum investment of at least $25,000.
o For the Airlines sector, the maximum number of stocks chosen should be two.
o The total amount invested in Banking must be at least as much as the amount invested in Agriculture.
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Formulate a model that will decide Andrew's investment strategy to maximize his expected annual return.

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Definitions:

Coefficient of Variation

A measure of relative variability calculated as the standard deviation divided by the mean, often expressed as a percentage.

PHStat

An Excel add-in that enhances the statistical functions of the software, providing tools for more complex statistical analysis in business, finance, and research applications.

Correlation Among Assets

A measure indicating the degree to which two or more assets move in relation to each other.