An Investor Wishes to Maximize the Return on Her Portfolio

question 1

Essay

An investor wishes to maximize the return on her portfolio while also maintaining certain liquidity and risk standards. The alternatives and their corresponding returns are:
$\begin{array} { l r } \text { Alternative } & \text { Return } \\\text { Municipal Bonds (M) } & 6.2 \% \\\text { Certificates of Deposit (S) } & 5.1 \% \\\text { Treasury Bills (T) } & 6.9 \% \\\text { AA Bonds (B) } & 10.5 \%\end{array}$
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:

Drawee

The party, usually a bank, required to pay the specified amount on a draft or check.

Drawer

The person or entity that writes and signs a check or draft, instructing the drawee (usually a bank) to pay the specified sum to the payee.

Payee

The individual or entity entitled to receive payment in a transaction.

Electronic Banking

The use of computer networks and digital technologies to conduct financial transactions and access banking services.