Question
A financial planner is designing a portfolio of investments for a client that $300,000 to invest. The planner found four investment options for the money.
A financial planner is designing a portfolio of investments for a client that $300,000 to invest. The planner found four investment options for the money. The following requirements have been placed on the planner: maximum of 25% of the money in any one investment, at least one third invested in long-term bonds maturing in seven or more years, and no more than 25% of the total money should be invested in C or D since they are riskier. The planner developed the following LP model based on this information. The objective is to maximize the total return of the portfolio.
| Investment | Return | Years to Maturity | Rating |
| A | 6.45% | 9 | 1-Excellent |
| B | 7.10% | 8 | 2-Very Good |
| C | 8.20% | 5 | 4-Fair |
| D | 9.00% | 8 | 3-Go |
Let X1 = Dollars invested in A
X2 = Dollars invested in B
X3 = Dollars invested in C
X4 = Dollars invested in D
MAX: .0645X1 + .071X2 + .082X3 + .09X4
Subject to: X1 + X2 + X3 + X4 300000
X1 75000
X2 75000
X3 75000
X4 75000
X1 + X2 + X4 100000
X3 + X4 75000
X1, X2, X3, X4 0
|
| A | B | C | D | E | F | G | H |
| 1 |
| Amount | Maximum |
| Years to | 7+ years? |
| Good or worse? |
| 2 | Bond | Invested | 25.00% | Return | Maturity | (1-yes, 0-no) | Rating | (1-yes, 0-no) |
| 3 | A | $0 | $75,000 | 6.45% | 9 | 1 | 1-Excellent | 0 |
| 4 | B | $0 | $75,000 | 7.10% | 8 | 1 | 2-Very Good | 0 |
| 5 | C | $0 | $75,000 | 8.20% | 5 | 0 | 4-Fair | 1 |
| 6 | D | $0 | $75,000 | 9.00% | 8 | 1 | 3-Good | 1 |
| 7 | Total Invested: | $0 | Total: | $0 | Total: | $0 | Total: | $0 |
| 8 | Total Available: | $300,000 |
|
| Required: | $100,000 | Allowed: | $75,000 |
What formula should you use in cell D7 to compute the total returns?
| =SUMPRODUCT(B3:B6,D3:D6) | ||
| =B7*SUM(D3:D6) | ||
| =SUM(B3:B6) | ||
| =SUMPRODUCT(B3:E3,B6:E6) |
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Audit Management And Supervision Wiley Ronald Institute Of Internal Auditors Professional Book Series
Authors: Gil W. Courtemanch, Guilbert W. Courtemanche
1st Edition
0471625655, 978-0471625650
