Question
Michelle received an inheritance of $95,000, and she is evaluating two speculative investments - the purchase of land and the purchase of cattle. Each investment
Michelle received an inheritance of $95,000, and she is evaluating two speculative investments - the purchase of land and the purchase of cattle. Each investment would be for 1 year. Under "normal" economic conditions, each dollar invested in land will return the principal plus 20% of the principal; each dollar invested in cattle will return the principal plus 30%. However, both investments have some risk. If economic conditions were to worsen, there is an 18% probability she would lose everything she invested in land and a 30% probability she would lose everything she invested in cattle. Michelle does not want to lose more than $20,000 (on average). She wants to know how to allocate her investments to maximize the cash value of the investments at the end of 1 year. a. Formulate algebraically the linear programming model for this problem. Group this in three sections: 1) Definition of Decision Variables, 2) Objective Function Equation, 3) Constraints Equations. b. Solve this problem using Excel.
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