Linear Programming – Maximizing Return on Investment
account. The chief investment officer would like to reinvest the $380,000 in a
portfolio that would maximize return on investment while at the same time
maintaining a relatively conservative mix of stocks and bonds. The following
table shows the investment opportunities and rates of return.
Investment Opportunity Rate
of Return
Municipal Bonds 0.095
High Tech Stock 0.146
Blue Chip Stock 0.075
Federal Bonds 0.070
The Board of Directors has mandated that at least 60 percent
of the investment consist of a combination of municipal and federal bonds, 25
percent Blue Chip Stock, and no more than 15 percent High Tech Stock.
(a) Formulate
this portfolio selection problem using linear programming.
(b) Solve
using LP software such as Excel QM or QM for windows. Write out answer step by
step if you can’t use QM.
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