Sam recived an inheritance and wants to set up a trust fund. The two options are

Question

Sam recived an inheritance and wants to set up a trust fund. The two options are a bond fund and a stock fund with a projected return of 6% for the bond and 10% for the stock. He wants to invest 30% in the bond and he wants a mix that will enable him a return of 7.5% Formulate a linear programming model that can be used to determine the % that should be allocated for each alternative and solve the problem using the graphical solution procedure.

Explanation / Answer

Let the total amount of the trust fund be T. The amount in the bond fund, B, and the amount in the stock fund, S, will equal the amount of the fund: T = S + B. Also B >= .3T The return is .06B + .1(T - B) and that is to be >=.075T .06B + .1T - .1B >= .075T .025T - .04B >= 0 .025T >= .04B 25T >= 40B 5T >= 8B B

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