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A group of investors decides to invest $500,000 in the stocks of three companies. Company D sells...

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Accounting

A group of investors decides to invest $500,000 in the stocks ofthree companies.

  • Company D sells for $60 a share and has an expected growth of16% per year
  • Company E sells for $80 a share and has an expected growth of12% per year
  • Company F sells for $30 a share and has an expected growth of9% per year.

The group plans to buy twice as many shares of company F as ofcompany E. If the group’s goal is 14.52% growth per year. How manyshares of each stock should the investors buy?

Answer & Explanation Solved by verified expert
4.4 Ratings (693 Votes)

Company No.of shares $ /share Growth rate /yr.
E x 80 1.12
F 2x 30 1.09
D 60 1.16
Amt. to be invested = 500000
Equating the money values of individual stock's growth & the overall growth ,
with data from the above table,
(1.12*(80*x))+(1.09*(30*2x))+(1.16*(500000-140x))=1.1452*500000
& solving for x, we get,
x=no.of shares of Company E= 1000
so, no.of shares of Company F= 1000*2=2000
& no.of shares of Company D=(500000-(1000*80)-(2000*30))/60= 6000
So, the
ANSWER is;
Shares of each stock the investors should buy is:
Company
D 6000
E 1000
F 2000
VERIFICATION:
Company No.of shares $ /share Initial value Growth rate /yr. Value at end of 1 yr.
1 2 3 4=2*3 5 6=4*5
E 1000 80 80000 1.12 89600
F 2000 30 60000 1.09 65400
D 6000 60 360000 1.16 417600
500000 572600
Overall growth (572600-500000) 72600
Overall growth rate= 72600/500000 14.52%

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