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CAT 2007 — QA Question 7

PercentageEasy
Passage / Data

Answer the next 2 questions based on the information given below.

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 a return of +2%

What strategy will maximize the guaranteed return to Shabnam?

Answer & solution

  • A

    100% in option A

  • 36% in option B and 64% in option C

  • C

    64% in option B and 36% in option C

  • D

    1/3 in each of the three options

  • E

    30% in option A, 32% in option B and 38% in option C

Solution

As shown by the table formulated in the first question, maximum returns are guaranteed by investing 36% in option B and 64% in option C.

Hence, option (b).

CAT 2007 QA Q7: What strategy will maximize the guaranteed return to Shabnam? — Solution | TheCATExam