Question

You just won a $100,000 lottery and plan to invest it among the following alternatives:

Annual Return Rate 9% 7% 4% Investment Global currency mutual fund (GF) Energy mutual fund (EF) Certificate of deposit (CD)

You want to invest this $100,000 in such a way to maximize your return from investment (in terms of dollars) one year from now, while meeting the following guidelines:

• You must invest at least $20,000 in GF, and at most $30,000 in EF.

• The amount invested in CD should be at least as much as the amount invested in GF.

• No more than 60% of the investment can be in GF and EF combined.

• EF and CD combined should account for at least 30% of your investment.

• Do not assume that you will invest all of $100,000. This decision should be determined by your linear programming model.

a. Formulate a linear programming model for your investment decision. (11pts)

b. Solve the model using Excel Solver. (6pts)

c. Without re-solving the problem, can you tell what would be the effect on your annual return if GF requires a minimum investment of $30,000? (Increase or decrease by how much? Or no change? Why?) (3pts)

d. Suppose GF’s return is increased to 10%. Without resolving the problem, can you tell if it is optimal to invest more in GF? What do you think is causing this? (3pts)