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(2 points) Finco Investment Corp. must determine investment strategy for the firm during the next three years. At present time (time 0), $100,000 is available
(2 points) Finco Investment Corp. must determine investment strategy for the firm during the next three years. At present time (time 0), $100,000 is available for investment. Investments A, B, C, D and E are available. The cash flow associated with investing $1 in each investment is given below. For example, $1 invested in investment B requires a $1 cash outflow at time 1 and returns $0.50 at time 2 and $1 at time 3. Cash flow at time t ($) Investment 0 1 2 +0.3 +0.5 1.0 1.0 1.0 1.0 1.0 +0.2 To ensure that the company's portfolio is diversified, Finco requires that at most $75,000 be placed in a single investment. In addition to investments A-E, Finco can earn interest at 8% per year by keeping uninvested cash in money market funds. Returns from investments may be immediately reinvested. Finco cannot borrow funds. Formulate an LP to maximize cash on hand at time 3 and solve it in Excel; Report the optimal solution
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