Bernie Maddog could have had a balanced portfolio for his clients (instead of ge

Question

Bernie Maddog could have had a balanced portfolio for his clients (instead of getting "caught up" in the ponzi scheme).

Based on the investment choices shown below, find the optimal mix of investments, subject to these balancing rules:

Average risk is below 1.9
No more than xx% (where xx is your age-38) of portfolio in any one investment
At least 20% bonds (corp plus muni)
Growth at least a factor of 12

Investment Muni Bonds Corp Bonds Common Growth Stock Mutual Funds Real Estate Risk Growth Return 6 1.3 0 1.5 1.9 15 8 1.7 2.7 15 20

Explanation / Answer

Let

X1=% share of Muni Bond

X2==% share of Corp Bond

X3==% share of Common Growth

X4==% share of Mutual Funds

X5= =% share of Real States be the % share in the portfolio.

The LPP has

Objective :

Maximize   TotalReturn = 6X1+8X2+5X3+7X4+15X5

Constraints:

Average risk less than 1.9

1.3X1+1.5X2+1.9X3+1.7X4+2.7X5<=1.9*5*100

Bonds at least 20%

X1+X2>=20

Growth at least a factor of 12

15X3+8X4+20X5>=.12*(6X1+8X2+5X3+7X4+15X5)

Total portfolio 100%

X1+X2+X3+X4+X5=100

Any investment no more than 38%

X1, X2, X3, X4, X5 <=38

And X1, X2, X3, X4, X5>=0

Solving using Excel Solver Optimum solution

X1=0, X2=38, X3=0, X4=24, X5=38

and maximum return is 1042

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.