A Financial Planner Wants to Design a Portfolio of Investments

question 6

Essay

A financial planner wants to design a portfolio of investments for a client.The client has $400,000 to invest and the planner has identified four investment options for the money.The following requirements have been placed on the planner.No more than 30% of the money in any one investment,at least one half should be invested in long-term bonds which mature in six or more years,and no more than 40% of the total money should be invested in B or C since they are riskier investments.The planner has developed the following LP model based on the data in this table and the requirements of the client.The objective is to maximize the total return of the portfolio.
$$\begin{array} { l c c c } \text { Inve5trment } & \text { Retuin } & \text { Years to Maturity } & \text { Rating } \\\hline \text { A } & 6.45 \% & 6 & \text { 1-Eacellent } \\\text { B } & \mathbf { 8 . 5 0 \% } & 5 & \text { 3-Good } \\\text { C } & 9.00 \% & 8 & 4 - F a i r \\D & 7.75 \% & 4 & 2 - V e r y \text { Good }\end{array}$$
Formulate the LP for this problem.

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Definitions:

Financial Markets

Facilities or platforms that support the trading of financial instruments including stocks, bonds, and currencies among investors.

Long-Term Debt

Debt obligations of a company that are due more than one year in the future, including bonds, leases, and loan agreements.

Equity Securities

Shares of stock that represent ownership interest in a company, potentially providing voting rights and dividends to the shareholder.

Money Markets

Financial markets where short-term debt securities are bought and sold.