DrMalcomb Heizer Wishes to Invest His Retirement Fund of $2,000,000

question 80

Essay

Dr.Malcomb Heizer wishes to invest his retirement fund of $2,000,000 so that his return on investment is maximized,but he also wishes to keep the risk level relatively low.He has decided to invest his money in any of three possible ways: CDs that pay a guaranteed 4 percent;stocks that have an expected return of 14 percent;and a money market mutual fund that is expected to return 18 percent.He has decided that the total $2,000,000 will be invested,but any part (or all)of it may be put in any of the three alternatives.Thus,he may have some money invested in all three alternatives.He has also decided to invest,at most,30 percent of this in stocks and at least 20 percent of this in money market funds.Formulate this as a linear programming problem and carefully define all the decision variables.

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Definitions:

Coefficient Of Determination

The coefficient of determination, often denoted as R^2, is a statistic used in the context of statistical models whose main purpose is to provide a measure of how well observed outcomes are replicated by the model, based on the proportion of total variation of outcomes explained by the model.

Pearson Coefficient

A measure of the linear correlation between two variables X and Y, giving a value between -1 and 1.

Linear Relationship

A type of association where the change in a variable is consistent with the change in another variable, represented by a straight line on a graph.

Coefficient Of Determination

A measure used in statistical analysis that assesses how well a model explains and predicts future outcomes, typically represented as R-squared.