A portfolio manager in charge of a bank portfolio has $10 million to invest. The securities available for purchase, as well as their respective quality ratings, maturities, and yields, are shown in the table below:
The bank places the following policy limitations on the portfolio manager's actions:
1. Government and agency bonds must total at least $4 million.
2. The average quality of the portfolio cannot exceed 1.4 on the bank's quality scale. (Note that a low number on this scale means a high-quality bond.)
3. The average years to maturity of the portfolio must not exceed 5 years.
Assuming that the objective of the portfolio manager is to maximize after-tax earnings and that the tax rate is 50%, formulate a linear program that can be used to determine how much money to invest in each type of bond.
Definitions:
Situational Attributions
The process of attributing a person's behavior to external or environmental factors instead of to internal personality traits.
Fundamental Attribution Error
A common bias in social psychology where individuals attribute others' actions to their personality or disposition rather than situational factors affecting those actions.
Foot-In-The-Door Phenomenon
The tactic of influencing a person to agree to a large request by first getting them to agree to a modest request.
Enforce Recycling
The act of ensuring compliance with recycling laws and policies to reduce waste and environmental impact.
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