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Julia Johnson has been accumulating savings for years to put toward her children's future college educations. She would now like to set up a
Julia Johnson has been accumulating savings for years to put toward her children's future college educations. She would now like to set up a college- savings fund for her two children. The college-savings fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 6% for the bond fund and 11% for the stock fund. Whatever portion of her accumulated savings that she finally decides to commit to the college-savings fund, she wants to invest at least 30% of that amount in the bond fund. In addition, she wants to select a mix that will enable her to obtain a total return of at least 8%. (a) Formulate a linear programming model that can be used to determine the percentage (as a decimal) that should be allocated to each of the possible investment alternatives. (Assume B is the percentage (as a decimal) of funds invested in the bond fund and S is the percentage (as a decimal) of funds invested in the stock fund.) Max (as a decimal) 6x+11y Check which variable(s) should be in your answer. s.t. bond minimum fund minimum return percentage requirement B, S0 (b) Solve the problem using the graphical solution procedure. What is the value of the objective function at the optimal solution? at (B, S) =
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