Risk Management The table below shows the price per share at the close of trading on

Chapter 4, Problem 24

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Risk Management The table below shows the price per share at the close of trading on March 1, 2010, the price to earnings ratio, and the dividend paid in the last quarter for Exxon Mobil and Wells Fargo. Price to Price per Earnings Last Quarterly Share Ratio Dividend per 3-1-10 (P/E Ratio) Share Exxon Mobil Corporation $65.40 16.51 $0.42 General Dynamics $73.50 11.97 $0.38 A pension fund has decided to invest up to $800,000 to purchase shares of stock in the above two companies. It wants the total dividends next quarter from these stocks to be at least $4500, but will not invest more than 60% of the $800,000 in any one of these companies. When purchasing stock, this pension fund minimizes risk, which it calculates as follows: How many shares of stock in each company should be purchased to minimize risk? Assume dividends paid next quarter are the same as in the previous quarters.