Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is a linear programming question. What I am wondering is what the decision variables would be, objective function and also the constraints. i'm confused

This is a linear programming question. What I am wondering is what the decision variables would be, objective function and also the constraints. i'm confused with where the %risks of total losses and %of potential returns fit into the answer, referring to the decision variables, constraints and the objective function. ive attatched the info below.

Richelieu Specialty Paints has been quite successful and has $1,500,000 cash to be invested. Amanda and her management team have developed four potential investments in addition to leaving the cash in a low interest deposit. The four new opportunities are: 1. Purchase some shares of a major supplier (25% risk of total loss, 13% potential return) 2. Invest in the research and development of a new product (50% risk of total loss, 60% potential return) 3. Buy a selection of corporate bonds (10% risk of total loss, 6% potential return) 4. Buy a selection of government bonds (1% risk of total loss, 3% potential return) Leaving the money in a low interest deposit is virtually riskless and has a 0.5% potential return. Richelieu's father had provided Amanda with some guidelines for investment, aimed at diversification and risk management. These are: 1. Invest a maximum of 40% of the total cash in any one of the four new opportunities to ensure some risk control. 2. Invest at least $100,000 in each of the four new opportunities to ensure some diversity. 3. Limit the total potential loss, on average, to $250,000, based on the risk factors indicated. 4. Ensure the highest return possible. Recommend the appropriate mix of the four investments and note how much money, if any, should be left in the low interest deposit. Also, how would this mix change, and what would happen to potential return, if Amanda decided to take a more conservative approach and limit the total potential loss to $175,000.

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_2

Step: 3

blur-text-image_3

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

Mathematics For Business

Authors: Stanley A Salzman, Charles D Miller, Gary Clendenen

8th Edition

0321357434, 9780321357434

More Books

Students also viewed these Finance questions