Posted: August 28th, 2016

. Which of the following statements is true about Financial Analysts’ portfolio

Entries for Zero-Interest Bearing Notes – On January 1, 2013, McLean Company makes the two following acquisitions.
a) Purchases land having a fair market value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $505,518.
b) Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $400,000 (interest payable annually).
The company has to pay 11% interest for funds from its bank.

Financial Analysts, an investment firm, manages stock portfolios. The firm is considering investing in two stocks for a particular client. The client has a total of $60,000 to invest. Oil Alaska shares cost $30 per share. Southwest Petroleum shares cost $40 per share. Oil Alaska returns per share per year and Southwest Petroleum returns per share per year. Which of the following statements is true about Financial Analysts’ portfolio optimization problem? (Assume X1 = Oil Alaska shares and X2 = Southwest Petroleum shares).
A. The objective function minimizes 30X1 + 40X2
B. The objective function maximizes 30X1 + 40X2
C. 30X1 + 40X2 ? 60,000 is a constraint of the problem
D. 6X1 + 5X2 ? 60,000 is a constraint of the problem