Question
Charles Jones is a financial advisor who specializes in maling recommendations to investors who have recently come into unexpected sums of moncy from inheri-tances, lottery
Charles Jones is a financial advisor who specializes in maling recommendations to investors who have recently come into unexpected sums of moncy from inheri-tances, lottery winnings, and the like. He discusses investment goals with his clients, taking into account cach client's attitude soward risk and liquidity. After an initial consultation with a client, Charles selects a group of stocks, bonds, mutual funds, savings plans, and ocher investments that he feels may be appropriate for consideration in the portfolio. He then secures information on each Investment and determines his own rating: With this information he develops a chart giving the risk factors (numbers between 0 and 100, based on his evaluation), expected returns based on current and projected company oprations, and liquidity information. At the second meeting Charles defines the client's goals more specifically. The responses are entered into a linear programming model, and a recommendation is made to the client based on the results of the model. Frank Baldarz has just inherited $100,000. Based on their initial meeting, Charles has found Frank to be quite risk-averse. Charles, therefore, suggests the following potential investments that can offer good returns with small risk. Potential Expected Jowertr Ligmidity Investwent Return Risk Rating Analysis Factor Savings account Certificate of deposit 4.0% A Immediate 5-year Atlantie Lighting 5.2% A Arkansas REIT 7.1% B= 10.0% Immediate B Bedrock Insurance annuity 8.29 Immediate A 1-year Nocal Mining bond 6.5% B4 1-year Minicomp Systems 20.0%6 A Immediate Antony Hotels 12.5% C Immediate 25 30 20 15 65 40 Based on their second meeting, Charles has been able to help Frank develop the following portfolio goals. 1. An expected annual return of at least 7.59 2. Ar least 50% of the inheritance in A-rated investments 3. At least 40% of the inheritance in immediately leuid investments 4. No more than $30,000 in savings accounts and certificates of deposit Given that Frank is risk-averse, Charles would like to make a Gnal recommendation chat will minimize total risk while meeting these goals Assuming that Frank will invest all $100,000, develop a linear programming model to determine the amount to be invested in each products so that the total risk will be minimized while meeting the four portfolio goals, by a) first write out the complete model, b) then use Excel Solver to find the solution. SHOW IT IN THE EXCEL. DONT HAVE MY DATA RIGHT, WHATS WRONG ?
Designation | ER | Rating | Risk | Invest | ||||||||
x1 | SA | 4.0% | A | 0 | 100,000 | |||||||
x2 | CD | 5.2% | A | 0 | ||||||||
x3 | AL | 7.1% | B+ | 25 | ||||||||
x4 | AR | 10.0% | B+ | 30 | ||||||||
x5 | BI | 8.2% | A | 20 | ||||||||
x6 | NB | 6.5% | B+ | 15 | ||||||||
x7 | MS | 20.0% | A | 65 | ||||||||
x8 | AH | 12.5% | C | 40 | ||||||||
D.V name | x1 | x2 | x3 | 4 | x5 | x6 | x7 | x8 | ||||
D.V | 30000 | 0 | 4000 | 0 | 0 | 0 | 0 | 0 | Total | |||
O.F. | 0 | 0 | 25 | 30 | 20 | 15 | 65 | 40 | 100000 | |||
Cons | ||||||||||||
RISK | 0 | 0 | 25 | 30 | 20 | 15 | 65 | 40 | 100000 | <= | 100,000 | |
Total Invesment | 0.04 | 0.05 | 0.071 | 0.10 | 0.082 | 0.065 | 0.20 | 0.125 | 1484 | >= | 0.75 | |
A Invesment | 0 | 0 | 1 | 1 | 1 | 1 | 0 | 0 | 4000 | >= | 50,000 | |
Liquidity | 1 | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 34000 | >= | 40,000 | |
Savings and CD | 1 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 30000 | <= | 30,000 |
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