Question

10 lay n- ow ay he 16-18 Stockbroker Susan Drexler has advised her client as shown in the following table. EXPECTED RETURN (THOUSANDS) (THUSANDS) COST INVESTMENT Andover municipal bonds Hamilton city bonds East Power & Light Co. Nebraska Electric Service Southern Gas and Electric Manuel Products Co. Builders Paint Co. Rest Easy Hotels Co 400 S 35 or ay ay ole nd $1,000 350 700 $100 s 30 65 50. S 490 S 45 ly $ 270 S 800 500 $ 20 $ 90 50 its uld nit no The client agrees to this list but provides sev- eral conditions: (1) No more than $3,000,000 can be invested, (2) the money is to be spread among at least five investments, (3) no more than one type of bond can be purchased, (4) at least two utility stocks must be purchased, and (5) at least two regular stocks must be purchased. Formulate this as a 0-1 IP problem for Ms. Drexler to maximize expected return. Solve it by using Excel. Solve Question 16-18 on page 594 of the eTextBook Stockbroker Susan Drexler Then answer the following questions based on your Excel solution Optimal solution meeting all constraints. Invest? (1=Yes, 0 = No) for the following: Andover municipal bonds □ Hamilton city bonds East Power & Light Co. Nebraska Electric Service Southern Gas and Electric Manuel Products Co. □ Builders Paint Co. Rest Easy Hotels Co. Total Cost (thousands) $ Total expected return (thousands): S$

Answer 1

Answer This is a binary integer problem Decision Variables There are 8 decision variables. Decision variable for Decision variable for Decision variable for Decision variable for Decision variable for Decision variable for Decision variable for Decision variable for Andover Municipal Bonds Hamilton city Bonds East Power & Light Co Nebraska Electric Service South Gas and Electric Manuel Products Builder Paint CO Ret Easy Hotels Co 2 4 X4 x6 X8 Each decision varaible is binary integer and can have value either 0 or1 The value of 1 indicates as selected for maximum expected profit and value of 0 indicates not selected Constraints No more than $3M can be invested

x1-400 +x2 1000+ x3*350+x4*700 +x5*490+ x6*270+x7*800+x8*500S 3000 The money to be spread among at least five investments x1+ x2+x3+x4+x5+x6+x7+x8 2 x1+ x2 1 x3+x4+x5 2 2 4 x6+x7+x82 2 Decision variables are bina x1....x8 na

Obiective function: Maximize expected profit Profit x1*35+ x2*100+ x3*30+ x4*65 + x5*45 + x6"20 + x7*90 + x8*50 Excel solver variables values Profit x1 $35.00 100.00 30.00$ 65.00 45.00 20.00 90.00$ 50.00 value LHS RHS Constraint1 $ 400.00 $ 1,000.00 $ 350.00 Constraint 2 Constraint 3 Constraint 4 Constraint 5 700.00$ 490.00 $ 270.00 $ 800.00 500.00 2910 3000 $ 285.00 Maximize Profit -