Question

The administrator of a $200,000 trust fund must adhere to following guidelines.

a. The money may be invested in three different types of securities: a utilities stock paying a 9% dividend, an electronics stock paying a 4% dividend, and a bond paying 5% interest.
b. The amount invested in the stocks cannot be more than half the total amount invested; the amount invested in the utilities stock cannot exceed $40,000; and the amount invested in the bond must be at least $70,000.
c. The total amount need not be fully invested at any one time.

Required:
Setup an LP problem to maximize profit.

Answer 1

Explanation:

let us give all the quantities in the problem variable names.

x= amount in utility stock

y = amount in electronics stock

c = amount in bond

“The total amount of $200,000 need not be fully invested at any one time.”

becomes

x + y + c ≤ 200, 000,

Also

“The amount invested in the stocks cannot be more than half the total amount invested”

a + b ≤1/2 (total amount invested),

=1/2(x + y + c).

(x+y-c)/2≤0

“The amount invested in the utility stock cannot exceed $40,000”

a ≤ 40, 000

“The amount invested in the bond must be at least $70,000”

c ≥ 70, 000

Putting this all together, our linear optimization problem is:

Maximize z = 1.09x + 1.04y + 1.05c

subject to

x+ y+ c ≤ 200, 000

x/2 +y/2 -c/2 ≤ 0

≤ 40, 000,

c ≥ 70, 000

a ≥ 0, b ≥ 0, c ≥ 0.