Question
A fund manager has P 10 million to invest in treasury bills, bonds, private placements and in risky venture. Relevant information about these various investments
A fund manager has P 10 million to invest in treasury bills, bonds, private placements and in risky venture. Relevant information about these various investments are presented below:
Investment | Yield rate p.a. | Maturity | Risk rating |
Treasury Bill | 6% | 3 months | 1 |
Bonds | 8% | 5 years | 2 |
Private Placement | 12% | 6 months | 4 |
Risky Venture | 20% | 3 years | 8 |
Guidelines given by the fund manager were:
- 50% of the investment must have a maturity below one year
- Investment in Risky venture should not exceed 20% of funds invested.
- At least 30% should be invested in treasury bills.
- Total investments in items risk rating above 3 should not exceed 40% of total funds invested.
Formulate an LP model that would optimize return for this portfolio where X1 = investment in Treasury bills, X2 = investment in bonds, X3 = investment in private placement, X4 = investment in risky venture
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