Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A trust officer at Pond Island Bank needs to determine what percentage of the bank's investable funds to place in each of following investments. 8.5%

image text in transcribed

A trust officer at Pond Island Bank needs to determine what percentage of the bank's investable funds to place in each of following investments. 8.5% Investment Yield Maturity Risk A 11.0% 8 5 B 8.0% 1 2 7 1 D 10.0% 6 5 E 9.0% 2 3 The Yield column represents each investment's annual yield. The Maturity column indicates the number of years funds must be placed in each investment. The Risk column indicates an independent financial analyst's assessment of each investment's risk. In general, the trust officer wants to maximize the weighted average yield on the funds placed in these investments while minimizing the weighted average maturity and the weighted average risk. a. Formulate an MOLP model for this problem and implement your model in a spreadsheet. Determine the best possible value for each objective in the problem. Round your answers to one decimal place, if necessary. Objectives: Yield 11 % Maturity 8 Risk 5 V b. Determine the solution that minimizes the maximum percentage deviation from the optimal objective function values. What solution do you obtain? Round your answers to one decimal place, if necessary and if your answer is zero, enter "0". Bond Amount A 100 % B 0 % 0 D 0 % E The Maximum deviation is 11 Round your answer to two decimal places. C. Suppose management considers minimizing the average maturity to be twice as important as minimizing average risk, and maximizing average yield to be twice as important as minimizing average maturity. What solution does this suggest? Round your answers to one decimal place, if necessary and if your answer is zero, enter "o". Bond Amount A 0 % B 85.7 % 0 % D E % The Maximum deviation is 0.86 . Round your answer to two decimal places. A trust officer at Pond Island Bank needs to determine what percentage of the bank's investable funds to place in each of following investments. 8.5% Investment Yield Maturity Risk A 11.0% 8 5 B 8.0% 1 2 7 1 D 10.0% 6 5 E 9.0% 2 3 The Yield column represents each investment's annual yield. The Maturity column indicates the number of years funds must be placed in each investment. The Risk column indicates an independent financial analyst's assessment of each investment's risk. In general, the trust officer wants to maximize the weighted average yield on the funds placed in these investments while minimizing the weighted average maturity and the weighted average risk. a. Formulate an MOLP model for this problem and implement your model in a spreadsheet. Determine the best possible value for each objective in the problem. Round your answers to one decimal place, if necessary. Objectives: Yield 11 % Maturity 8 Risk 5 V b. Determine the solution that minimizes the maximum percentage deviation from the optimal objective function values. What solution do you obtain? Round your answers to one decimal place, if necessary and if your answer is zero, enter "0". Bond Amount A 100 % B 0 % 0 D 0 % E The Maximum deviation is 11 Round your answer to two decimal places. C. Suppose management considers minimizing the average maturity to be twice as important as minimizing average risk, and maximizing average yield to be twice as important as minimizing average maturity. What solution does this suggest? Round your answers to one decimal place, if necessary and if your answer is zero, enter "o". Bond Amount A 0 % B 85.7 % 0 % D E % The Maximum deviation is 0.86 . Round your answer to two decimal places

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Accounting

Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik

10th edition

0-07-794127-6, 978-0-07-79412, 978-0077431808

Students also viewed these Finance questions