Question
A financial manager is managing a cash fund. His investment alternatives available are various certificates of deposit, also known as CDs, as listed in the
A financial manager is managing a cash fund. His investment alternatives available are various certificates of deposit, also known as CDs, as listed in the following table:
Investment | Yield | Availability |
1-month CD | 0.5% | Beginning of each month |
3-month CD | 1.75% | Beginning of Months 1, 2, 3, 4 |
6-month CD | 2.3% | Beginning of Month 1 |
However, he also must ensure that sufficient funds are available to pay company expen- ditures over the next six months. The following table lists the net expenditures (in thou- sands of dollars) that the manager is obligated to cover (cash amounts in parenthesis indicate a net inflow of cash rather than outflow).
Month | Net Expenditures ($1,000s) |
1 | $45 |
2 | ($11) |
3 | $25 |
4 | ($22) |
5 | $43 |
6 | ($15) |
The cash on hand to invest at the start of month 1 is $200,000 and the minimum cash required to be available at the end of month 6 is $100,000. Develop and solve a linear program that will recommend how to invest to maximize the amount of interest income accrued over the next six months while satisfying all financial commitments.
(Hint: Investment time starts at the beginning of the month and returns at the end of the month. For example, money invested in a 1-month CD in month 1 will be invested at the beginning of month 1 and returned with interest at the end of month 1. Likewise, money invested in a 3-month CD at the start of month 1 will be returned with interest at the end of month 3.)
EXCEL
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