Question
used the following cash flow schedule to determine how Jack Potts should invest his $1,000,000 in order to maximize his return at the start of
used the following cash flow schedule to determine how Jack Potts should invest his $1,000,000 in order to maximize his return at the start of year 4.
Year 1 | Year 2 | Year 3 | Year 4 | |
A | -1 | 0.5 | 0.8 | |
B | -1 | <---> | 1.25 | |
C | -1 | <---> | <---> | 1.35 |
D | -1 | 1.13 | ||
E | -1 | <---> | 1.27 | |
M1 | -1 | 1.08 | ||
M2 | -1 | 1.08 | ||
M3 | -1 | 1.08 |
Jack wanted at least $50,000 in the money market each year (M1, M2, M3) and no more than $500,000 in any single investment. We found an optimal objective function value of $1,449,606 (rounded to the nearest dollar), so Jack's maximum possible net gain is about $449,606 under the given parameters.
Suppose Jack changes his mind about keeping at least $50,000 in the money market each year. He wants to know the change in his net gain if he allows a minimum of $0 in all investments, including the yearly money market. (None of the other parameters change.) His maximum possible net gain is, in fact, higher, by how much, to the nearest dollar?
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