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

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 Any stock chosen can have a maximum investment 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 that can be chosen is two.
o The total amount invested in Banking must be at least as much as the amount invested in Agriculture.
Formulate and solve a model that will decide Andrew's investment strategy to maximize his expected annual return.