Question
You just won a $100,000 lottery and are considering the following investment vehicles: Investment Annual Return Rate Global currency mutual fund (GF) 8% Energy mutual
You just won a $100,000 lottery and are considering the following investment vehicles:
Investment | Annual Return Rate |
Global currency mutual fund (GF) | 8% |
Energy mutual fund (EF) | 5% |
Certificate of deposit (CD) | 3% |
You want to maximize your return from investment (in terms of dollars) one year from now, while meeting the following guidelines:
Your total investment cannot exceed $100,000.
You cannot short any= investment (i.e., you cannot invest in a negative amount).
You must invest at least $5,000 in GF, and at least $3,000 in EF.
The amount invested in EF should not exceed the amount invested in CD.
No more than 80% of the investment can be in GF and CD combined.
EF and CD combined should account for at least 30% of your investment.
Formulate a linear programming model for your investment decision.
Solve the model using Excel Solver.
Suppose EFs return is increased to 9% (which is higher than GFs 8%). Without resolving the problem, can you tell if it is optimal to invest more in EF than in GF? What do you think is causing this? You need to explain with full justification
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