A young investor who has accumulated a large amount of money has sought advice from
an investment counselor on how to invest some or all of the money. With the aid of the counselor,
the investor has selected the following investment alternatives: common stock, treasury bills, AAA
bonds, BBB bonds, income bonds, and negotiable certificates of deposit. After careful analysis,
the counselor has determined the estimated yield for each investment alternative.
Annual Yield (%)
Negotiable certificates of deposit 7.00
The investor wants the investment in common stock to be no more than $80,000 and the investment
in income bonds to be no more than 10% of the total invested in bonds (AAA, BBB,
and income). The amount invested in negotiable certificates of deposit should be at least as much
as the amount invested in treasury bills. In the interest of diversification, not more than 25% of the
total investment should be invested in anyone alternative. The investor wants to know the amount
to invest in each alternative to maximize the expected return.
The investor wants up to $800, 000 to be invested, and he would like to have a linear programming
model with the total amount.
Formulate a linear programming model for this problem. Make sure you define decision
variables clearly. (Do not attempt to solve.) Please use the back of this page if necessary.
This posting assists with a linear programming model.