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Kelly Devilbiss; Problem 8-21 Problem 8-2 Investment = $250,000 (a)Municipal bonds should constitute at least 20% of the investment. (b)At least 40% of.

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Presentation on theme: "Kelly Devilbiss; Problem 8-21 Problem 8-2 Investment = $250,000 (a)Municipal bonds should constitute at least 20% of the investment. (b)At least 40% of."— Presentation transcript:

1 Kelly Devilbiss; Problem 8-21 Problem 8-2 Investment = $250,000 (a)Municipal bonds should constitute at least 20% of the investment. (b)At least 40% of the funds should be placed in a combination of electronic firms, aerospace firms, and drug manufacturers. (c)No more than 50% of the amount invested in municipal bonds should be placed in a high-risk, high-yield nursing home stock. Investment Projected Rate of Return (%) Los Angeles Municipal Bonds5.3 Thompson Electronics, Inc.6.8 United Aerospace Corp.4.9 Palmer Drugs8.4 Happy Days Nursing Homes11.8

2 Kelly Devilbiss; Problem 8-22 Let: X 1 = Dollars invested in Los Angeles Municipal Bonds X 2 =Dollars invested in Thompson Electronics, Inc. X 3 = Dollars invested in United Aerospace Corp. X 4 = Dollars invested in Palmer Drugs X 5 = Dollars invested in Happy Days Nursing Homes

3 Kelly Devilbiss; Problem 8-23 Objective: Maximize projected return on investments Subject to: X 1 + X 2 + X 3 + X 4 + X 5 = 250,000 X 1 >.20 (X 1 + X 2 + X 3 + X 4 + X 5 ) X 2 + X 3 + X 4 >.40 (X 1 + X 2 + X 3 + X 4 + X 5 ) X 5 ≤.50 (X 1 ) X 1, X 2, X 3, X 4, X 5 ≥ 0

4 Kelly Devilbiss; Problem 8-24 Using QM for Windows

5 Kelly Devilbiss; Problem 8-25 Solve:

6 Kelly Devilbiss; Problem 8-26 Answer: Invest: $50,000 in Los Angeles Municipal Bonds $175,000 in Palmer Drugs $25,000 in Happy Days Nursing Homes


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