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Varma Investment Services must develop an investment portfolio for a new client. As an initial investment strategy, the new client would like to restrict
Varma Investment Services must develop an investment portfolio for a new client. As an initial investment strategy, the new client would like to restrict the portfolio to a mix of two stocks. Stock Price/Share ($) 1 AGA Products 50 2 Key Oil 100 Estimated Annual Return (%) 6 10 The client wants to invest $36,000 and established the following two investment goals. Priority Level 1 Goal Goal 1: Obtain an annual return of at least 9%. Priority Level 2 Goal Goal 2: Limit the investment in Key Oil, the riskier investment, to no more than 70% of the total investment. (a) Formulate a goal programming model for the Varma Investment problem. (Let x; be the number of shares of stock i purchased, dp; be the deviation variable which exceeds the value of goal i, dni be the deviation variable which is less than the value of goal i, for i = 1, 2.) Min P + P s.t. Funds Available P Goal P2 Goal Xi dni dpi 0 for i = 1, 2 (b) Use the graphical goal programming procedure to obtain a solution. (X1, X2) =
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