Opportunities to invest in Real estate will be available in the beginning of the

Question

Opportunities to invest in Real estate will be available in the beginning of the 6th and 7th year Each dollar invested in real estate will return $1.20 one year later. To minimize risk, you have decided to diversify your investments.The total amount invested in stocks cannot exceed 35% of total investments, and at least 30% of total investments must be in certificates of deposit. You like to determine the optimal mix of investments in the various alternatives that will . maximize the amount of cash at the end of the 7th year. Set up the problem as an LP. Define variables, objective function and constraints.

Explanation / Answer

From the case we can see that there are 3 vehicles of investment are available: Real estate, Stocks and Certificates of deposit

Investment Portfolio:

Year/Mode

Real Estate

Stock

Certificate

6

X1

X2

X3

7

X4

X5

X6

X4= r1X1  

r1 = 120%

X5= r2X2

X6= r3X3

Objective Function: Max = r1X4+r2X5+r3X6

S.T.

X4= r1X1  

X5= r2X2

X6= r3X3

X2 <= .35*(X1+X2+X3)

X3 <= .30*(X1+X2+X3)

X5 <= .35*(X4+X5+X6)

X6 <= .30*(X4+X5+X6)

Year/Mode

Real Estate

Stock

Certificate

6

X1

X2

X3

7

X4

X5

X6

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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