Please solve in Excel format and show step-by-step formulas. 3-13. Portfolio Pla

Question

Please solve in Excel format and show step-by-step formulas.

3-13. Portfolio Planning. An investment company currently has $10 million to invest. The goal is to maximize expected return earned over the next year. Their four investment possibilities are summarized below. In addition, the company has specified that at least 30% of the funds must be placed in common stock and treasury bonds, and no more than 40% in money market funds and municipal bonds. All of the $10 million currently on hand will be invested. Formulate an LP model that tells how much money to invest in each instrument and solve it. MAXIMUM ALLOWABLE INVESTMENT INVESTMENT POSSIBILITY EXPECTED RETURN (%) MILLIONS s) Treasury Bonds Common Stock 6 12 Money Market Municipal Bonds

Explanation / Answer

LP model is following:

Let X1, X2, X3, X4 be the amount to be invested in each of the four investment avenues, i.e. Treasury Bonds, Common Stock, Money Market and Municipal Bonds

Max 0.08X1+0.06X2+0.12X3+0.09X4

s.t.

X1+X2+X3+X4 = 10

X1 <= 5

X2 <= 7

X3 <= 2

X4 <= 4

X1+X2 >= 0.3*(X1+X2+X3+X4) OR simplifying, 0.7X1+0.7X2-0.3X3-0.3X4 >= 0

X3+X4 <= 0.4*(X1+X2+X3+X4) OR, simplifying, -0.4X1-0.4X2+0.6X3+0.6X4 <= 0

X1, X2, X3, X4 >= 0

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