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CAT-2007-Previous Years Paper

Question
10 out of 25
 

Shabnam is considering three alternatives to invest her surplus cash for a week. She wishes to guarantee maximum returns on her investment. She has three options, each of which can be utilized fully or partially in conjunction with others.

Option A: Invest in a public sector bank. It promises a return of +0.10%

Option B: Invest in mutual funds of ABC Ltd. A rise in the stock market will result in a return of +5%, while a fall will entail a return of –3%.

Option C: Invest in mutual funds of CBA Ltd. A rise in the stock market will result in a return of –2.5%, while a fall will entail of +2%.


The maximum guaranteed return to Shabnam is



A 0.20%

B 0.15%

C 0.30%

D 0.25%

E 0.10%

Ans. A

Let the amount invested in option B and C be in the ratio 1 : K

So, depending on whether there is a rise or fall in the stock market, The amount earned will be .

Therefore, guaranteed return

= min

Therefore, the maximum guaranteed will be earned when

i.e., .

Therefore, the maximum guaranteed return is when, the amounts invested are in the ratio 9 : 16 i.e., 36% and 64% respectively. Now, the guaranteed return for this distribution is 0.2% (see 11). Since option A gives a return of 0.1% which is lesser than this, no amount should be invested in option A.

Hence, maximum guaranteed return = 0.20%.

CAT-2007-Previous Years Paper Flashcard List

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