Eh Di Uhaw, Inc. is a company interested in investing money in stocks of companies producing drinks. The management of the company speculates on investing Php 2,000,000 in four available shares. To prevent a high risk index there is a necessity of investing some amount of money in government bonds. From a long-term survey of the financial market following annual rates of return and risk indices are projected: San Miguel Corporation Tanduay Distillers, Inc. Emperador Distillers, Inc. Pepsi Cola Products Philippines, Inc. Government bonds Rate of return 12% 9% 15% 7% 6% Risk index 0.07 0.09 0.05 0.03 0.01 At the board meeting, these restrictions have been approved: • No more than Php 200,000 might be invested in Pepsi Cola Products Philippines, Inc. shares. . Government bonds should cover at least 20% of all investments. • Because of diversification of portfolio, none of the alcoholic drinks companies should receive more than Php 800,000. • Risk index of the final portfolio should be 0.05 at most How should the board of directors of Eh Di Uhaw, Inc. distribute the Php 2,000,000 into the four available shares to generate the highest return, while satisfying the constraints laid down in the board meeting?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Eh Di Uhaw, Inc. is a company interested in investing money in stocks of companies producing drinks. The management of the
company speculates on investing Php 2,000,000 in four available shares. To prevent a high risk index there is a necessity of
investing some amount of money in government bonds. From a long-term survey of the financial market following annual rates of
return and risk indices are projected:
Rate of return
Risk index
San Miguel Corporation
12 %
0.07
Tanduay Distillers, Inc.
9 %
0.09
Emperador Distillers, Inc.
15 %
0.05
Pepsi Cola Products Philippines, Inc.
7 %
0.03
Government bonds
6 %
0.01
At the board meeting, these restrictions have been approved:
• No more than Php 200,000 might be invested in Pepsi Cola Products Philippines, Inc. shares.
• Government bonds should cover at least 20% of all investments.
• Because of diversification of portfolio, none of the alcoholic drinks companies should receive more than Php 800,000.
• Risk index of the final portfolio should be 0.05 at most
How should the board of directors of Eh Di Uhaw, Inc. distribute the Php 2,000,000 into the four available shares to generate the
highest return, while satisfying the constraints laid down in the board meeting?
Transcribed Image Text:Eh Di Uhaw, Inc. is a company interested in investing money in stocks of companies producing drinks. The management of the company speculates on investing Php 2,000,000 in four available shares. To prevent a high risk index there is a necessity of investing some amount of money in government bonds. From a long-term survey of the financial market following annual rates of return and risk indices are projected: Rate of return Risk index San Miguel Corporation 12 % 0.07 Tanduay Distillers, Inc. 9 % 0.09 Emperador Distillers, Inc. 15 % 0.05 Pepsi Cola Products Philippines, Inc. 7 % 0.03 Government bonds 6 % 0.01 At the board meeting, these restrictions have been approved: • No more than Php 200,000 might be invested in Pepsi Cola Products Philippines, Inc. shares. • Government bonds should cover at least 20% of all investments. • Because of diversification of portfolio, none of the alcoholic drinks companies should receive more than Php 800,000. • Risk index of the final portfolio should be 0.05 at most How should the board of directors of Eh Di Uhaw, Inc. distribute the Php 2,000,000 into the four available shares to generate the highest return, while satisfying the constraints laid down in the board meeting?
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