Problem #2 (20 points total)

Imagine you are a financial advisor for a client seeking to invest $750,000 in bonds. The following bonds are considered:

Company	Interest Rate	Years to Maturity	Rating
Acme Chemical	8.65%	11	1-Excellent
DynaStar	9.50%	10	3-Good
Eagle Vision	10.00%	6	4-Fair
Micromodeling	8.75%	10	1-Excellent
OptiPro	9.25%	7	3-Good
Sabre Systems	9.00%	13	2-Very Good

You believe all companies are safe investments. However, to protect the investor, you observe the following restrictions:

No more than 25% of the total funds should be invested in any one investment.

At least half should be invested in long-term bonds that mature in ten or more years. (at least 4)

No more than 35% of the total funds will be invested in the combination of DynaStar, Eagle Vision, and Optipro.

The investor wishes to invest all $750,000 of his money. If his/her goal is to maximize the simple interest earned after the first year, how much should be allocated to each of the six investments?

(2) For this problem, use the six variables x1, x2, x3, x4, x5, x6 to represent the amounts invested in each company, in the same order as above. What company does each variable refer to?

(2) What is your objective function, and are you trying to maximize or minimize?

(4) There are a total of 9 constraints (seven <=, one >=, and one =) in this problem, plus the 6 non-negativity constraints. Determine the nine constraints and write them below.

(2)Why do you also have the six non-negativity constraints?

(6) Now, create your Excel spreadsheet to solve this problem. Use the Use for problem 2 sheet. Print it out when you are done, before you run Solver, and turn it in with this lab.

(2) Now, set up Solver to solve this problem. What is the optimal solution for the variables, and what is the maximum value of your objective function?

(2) So, what does this answer tell you? How should you invest the clients money, and how much interest should he/she expect to earn in the first year?