You are creating a LP model that seeks to optimize the amount of money you inves

Question

You are creating a LP model that seeks to optimize the amount of money you invest in 6 different mutual funds. The mutual funds and their corresponding risk rating (on a scale of 1-10, with 10 being the most risky) are as follows:

Growth1 – 4, Growth2 – 7, Balanced – 2, SmallCap – 9, LargeCap – 6, International – 8.

(Abbreviations for the funds: GW1, GW2, BL, SC, LC, IT )

You have a total amount of $100,000 that you can invest, but your model does not have to invest all $100,000.

A constraint for your model needs to insure that the weighted average risk of your invested funds cannot exceed 5.   Which choice below is the only accurate representation of that requirement for use in an LP model?

4GW1 + 7GW2 + 2BL + 9SC + 6LC + 8IT >= 5

(4GW1 + 7GW2 + 2BL + 9SC + 6LC + 8IT)/(GW1 + GW2 + BL + SC + LC + IT) <= 5.

-1GW1 + 2GW2 – 3BL + 4SC + 1LC + 3IT <= 0

4GW1 + 7GW2 + 2BL + 9SC + 6LC + 8IT <= 500,000

Explanation / Answer

Let the amount invested in the Growth1, Growth2, Balanced, SmallCap, LargeCap, and International funds are

GW1, GW2, BL, SC, LC, IT respectively.

Corresponding risk ratings are:

Growth1 – 4, Growth2 – 7, Balanced – 2, SmallCap – 9, LargeCap – 6, International – 8

so weighted average risk

= total risk/total fund <= 5

= (4GW1 + 7GW2 + 2BL + 9SC + 6LC + 8IT)/(GW1 + GW2 + BL + SC + LC + IT) <= 5

so answer is 2nd option.

pleae upvote the answer.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.