X1: dollars invested in savings certificatėš X2: dollars invested in municipal bonds X3: dollars invested in stocks Formulate and explain the mathematical model for this LP problem, including: The Objective Function All the constraints that the solution must satisfy, including nonnegativity. a. b.

Practical Management Science
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Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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Problem #2 - (E
- An Investment-Planning Problem
An investor has decided to invest a total of $50,000 among three investment opportunities: savings
certificates, municipal bonds, and stocks. The annual return on each investment is estimated to be 7%,
9% and 14%, respectively.
The investor does not intend to invest his annual interest returns (that is, he plans to use the interest to
finance his desire to travel). He would like to maximize his yearly return while investing a minimum of
$10,000 in bonds. Also, the investment in stocks should not exceed the combined total investment in
bonds and savings certificates.
And, finally, he should invest between $5,000 and $15,000 in savings certificates.
The problem is to determine the proper allocation of the resources ($50,000) among the three investment
opportunities. Thus, the decision variables are:
X1: dollars invested in savings certificates
X2: dollars invested in municipal bonds
X3: dollars invested in stocks
Formulate and explain the mathematical model for this LP problem, including:
a. The Objective Function
b. All the constraints that the solution must satisfy, including nonnegativity.
Transcribed Image Text:Problem #2 - (E - An Investment-Planning Problem An investor has decided to invest a total of $50,000 among three investment opportunities: savings certificates, municipal bonds, and stocks. The annual return on each investment is estimated to be 7%, 9% and 14%, respectively. The investor does not intend to invest his annual interest returns (that is, he plans to use the interest to finance his desire to travel). He would like to maximize his yearly return while investing a minimum of $10,000 in bonds. Also, the investment in stocks should not exceed the combined total investment in bonds and savings certificates. And, finally, he should invest between $5,000 and $15,000 in savings certificates. The problem is to determine the proper allocation of the resources ($50,000) among the three investment opportunities. Thus, the decision variables are: X1: dollars invested in savings certificates X2: dollars invested in municipal bonds X3: dollars invested in stocks Formulate and explain the mathematical model for this LP problem, including: a. The Objective Function b. All the constraints that the solution must satisfy, including nonnegativity.
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