Using Lindo or Excel to Develop Constraint Equations
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The following table is a list of all of the stocks that you have in your stock portfolio. The original purchase price, current price and your best guess for the "anticipated" price (one year into the future) is given below:
Share Price ($)
Stock # Shares Owned Purchase Current Expected In One Year
1 234 20 30 36
2 272 25 34 39
3 106 30 43 42
4 452 35 47 45
5 486 40 49 51
6 359 45 53 55
7 345 50 60 63
8 419 55 62 64
9 255 60 64 66
10 264 65 66 70
Assume that the capital gains tax rate on long term profits is 20%. In addition, selling shares incurs a transaction cost of 1% of the sale proceeds.
Suppose that you need at least $30,000 in cash today. As such, you must sell off some of your stocks.
Create an integer linear program that tells you how many shares of which stock to sell in order to get the cash you need such that the anticipated future portfolio value of the remaining stocks is maximized.
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Solution Summary
LINGO (an advanced version of LINDO) is used to develop constraint equations. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.
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