Midwest Money Manger (MMM), an investment firm, has $4 million to invest. They h

Question

Midwest Money Manger (MMM), an investment firm, has $4 million to invest. They have four choices, namely stocks, bonds, money-markets, and government securities. The respective projected yields are: 15%, 9%, 6%, and 4.5%. The respective risk indices are: 0.2, 0.11, 0.07, and 0.01. It is assumed that the risk index of a portfolio is equal to the weighted average value of individual index, using the proportion of investment as weights. MMM wants to limit its investment in stocks and bonds to a maximum of 50% of the total investment. Investment in money markets should always be less than or equal to investment in government securities. MMM wants to earn at least $400,000 in the next year and minimize the risk of its portfolio. Formulate this as a linear program. (Specify the decision variables, constraints, and the objective function)

Explanation / Answer

LET US DESIGNATE AMOUNT INVESTED BY THE SYMBOLS

OBJECTIVE FUNCTION IS YIELD=Y GIVEN BY EQN.5

Y=0.15S+0.09B+0.07M+0.01G>=400 .........................5

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