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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:2
Answer all questions using the following case.
Case: John who is the chief executive officer of a leading technology company has just
received a bonus of £100000 for the performance of the company in recent months.
He would like to invest in number of stocks (labelled as i = 1,2,..., 10). In order to
reduce the risk of losing money he would like to diversify his portfolio and has already
selected 10 different stocks from FTSE100. John would like to construct a portfolio that
maximizes the expected return on investment in a year time. He has some individual
preferences summarized as follows:
the cost of investment in each of stocks should not exceed 20% of her total budget,
• stocks can be bought in integer amounts only, and
• any remaining cash are kept in the investment portfolio.
Given initial capital of C, the current price (p;) and the expected price (q;) in a year
time are presented in the following table.
Stocks 1
3
2
115 110
122
134 145 178
Pi
qi
5
4
154 128
135 118 124 173
6
(9i-Pi) xi
с
ΣΩ
Σ Pixi ≤ C
10
i=1
Pixi ≤0.2C, for i= 1,..., 10
X₁ ≥ 0, integer, for i= 1,..., 10
7
9
In order to answer the following questions, formulate the portfolio optimization
model and solve it using AMPL.
Q1:
Which one of the following conditions cannot be a part of constraints for the portfolio
optimization model?
8
158
128 161 197
10
*
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