Investor Doe has $10,000 to invest in four projects. The following table gives the cash flow for
Question:
Investor Doe has $10,000 to invest in four projects. The following table gives the cash flow for the four investments.
Cash flow ($1000) at the start of Project Year 1 Year 2 Year 3 Year 4 Year 5 1 -1.00 0.50 0.30 1.80 1.20 2 -1.00 0.60 0.20 1.50 1.30 3 0.00 -1.00 0.80 1.90 0.80 4 -1.00 0.40 0.60 1.80 0.95 The information in the table can be interpreted as follows: For project 1, $1.00 invested at the start of year 1 will yield $.50 at the start of year 2, $.30 at the start of year 3, $1.80 at the start of year 4, and $1.20 at the start of year 5. The remaining entries can be interpreted similarly. The entry 0.00 indicates that no transaction is taking place. Doe has the additional option of investing in a bank account that earns 6.5% annually. All funds accumulated at the end of 1 year can be reinvested in the following year. Formulate the problem as a linear program to determine the optimal allocation of funds to investment opportunities. Solve the model using Solver or AMPL.
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