An Investor Wishes to Maximize the Return on Her Portfolio

question 45

Essay

An investor wishes to maximize the return on her portfolio and also maintain certain liquidity and risk standards.The alternatives and their corresponding returns are:
Alternative Return
Municipal Bonds (M)6.2%
Certificates of Deposit (S)5.1%
Treasury Bills (T) 6.9%
AA Bonds (B)10.5%
The investor wishes to have at least 25% of the portfolio in Treasury Bills,no more than 20% in AA bonds;no more than 15% in Certificates of Deposit,and no more than 10% in municipal bonds.Formulate a linear programming problem for the investor seeking to maximize the expected return of a $200,000 portfolio.

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Definitions:

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