Previous Year Paper
CAT-2007-Previous Years Paper
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
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
Therefore, the maximum guaranteed will be earned when
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%.