Question

The Heinlein and Krampf Investment firm has just been instructed by one of its clients to invest $250,000 for her money. The client has a good deal of trust in the investment firm, but she has also her own ideas about the distribution of funds being invested. In particular, she requests the following: - municipal bonds should constitute at least 20% of the investment - at least 40% of the investment should be placed in a combination of electronic firms, aerospace firms, and drug manufacturers. - no more than 50% of the amount invested in municipal bonds should be placed in nursing home stock. Subject to these constraints, the client's goal is to maximize her return on investments. The investment firm has the following estimated rate of returns on investment choices: 5.3% Electronics Investment Estimated rate of return (%) Los Angeles Municipal Bonds Thompson Electronics 6.8% United Aerospace 4.9% Palmer Drugs 8.4% Happy Days Nursing Homes 11.8% What is the optimal rate of return for the client's portfolio

Answer 1

Using Solver, the optimal solution is to invest $50,000 in Los Angeles municipal bonds, $175,000 in Palmer Drugs and $25,000 in Happy days Nursing Homes. Maximum yearly profit = $20,300

Step-by-step explanation:

you have to maximize 0.053M + 0.068E + 0.049A + 0.084D + 0.118N

where:

• M = Los Angeles municipal bonds
• E = Thompson Electronics
• A = Unites Aerospace
• D = Palmer Drugs
• N = Happy Days Nursing Home

the constraints are:

M + E + A + D + N = 250,000

M ≥ 50000

E + A + D ≥ 100000

N ≤ 0.5M

M ≥ 0

E ≥ 0

A ≥ 0

D ≥ 0

N ≥ 0