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Investment Maximization Problem

Welgo Mutual Funds, Inc.

Welgo Mutual Funds, Inc., is located in Philadelphia, Pa. Welgo just obtained $100,000 by converting industrial bonds to cash and is now looking for other investment opportunities for these funds. Based on Welgo's current investments, the form's top financial analyst recommends that all new investments be made in the oil industry, steel industry, or in government bonds. Specifically, the analyst identified five new investment opportunities and projected their annual rates of return as shown in the following table:

Investment / Projected Rate of Return (%)

Atlantic Oil / 7.3
Pacific Oil / 10.3
Midwest Steel / 6.4
Huber Steel / 7.5
Government Bonds 4.5

The management of Welgo imposed the following investment guidelines:

1. Neither industry (oil or steel) should receive more than $50,000.
2. Government bonds should be at least 25 percent of the steel industry investments.
3. The investment in Pacific Oil, the high-return but high-risk investment, cannot be more than 60 percent of the total oil industry investment.

What portfolio recommendations - investments and amounts - should be made for the available $100,000 given the goal of maximizing return?

(a) show the algebraic model for this portfolio selection problem; and,
(b) include your Excel Solver solution


Solution Preview

Here is the algebraic formulation - hope it will help you learn

Algebraic Equation:

Let A,P,M,H,G be the % invested in each of the categories (these are decision ...

Solution Summary

The solution makes portfolio recommendations, showing algebraic models and including an Excel solution.