A Company Is Considering Investing a Total Amount of $2

question 24

Essay

A company is considering investing a total amount of $2.50 million in four bonds.The expected annual return,the worst-case annual return on each bond,and the "duration" of each bond are given in the table below.
The duration of a bond is a measure of the bond's sensitively to interest rates.The company wants to maximize the expected return from its bond investments,subject to the following constraints:
-The worst-case return of the bond portfolio must be at least 90%.
-The average duration of the portfolio must be at most 7
-Because of diversification requirements,at most 35% of the total amount invested in a single bond.
Determine how the company can maximize the expected return on its investment.

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Definitions:

Lithotripsy

A medical procedure that uses shock waves or a laser to break down stones in the kidney, bladder, or ureter to allow them to be passed in the urine.

-Tripsy

A suffix used in medical terminology to denote the crushing of a stone or calculus.

Calculus

A branch of mathematics dealing with the study of change, in the same way that geometry is the study of shape and algebra is the study of operations and their application to solving equations.

Sediment

Particles that settle at the bottom of a liquid; in medicine, it may refer to the solid material that settles at the bottom of a urine sample.