A financial advisor is about to build an investment portfolio for a client who h

Question

A financial advisor is about to build an investment portfolio for a client who has $100,000 to invest. The four investments available are A, B, C, and D. Investment A will earn four percent and has a risk of two "points" per $1,000 invested. B earns six percent with three risk points; C earns nine percent with seven risk points; and D earns 11 percent with a risk of eight. The client has put the following conditions on the investments: A is to be no more than one-half of the total invested. A cannot be less than 20 percent of the total investment. D cannot be less than C. Total risk points must be at or below 1,000. Formulate this as a linear programming model, that is, define your decision variables, state the objective function, write down all of the constraints and put them all in a standard LP format.

Explanation / Answer

Maximize Z

0.04A + 0.06B + 0.09C + 0.11D

Subject to constraint

A + B + C + D = $100,000

.5A -.5B -.5C -.5D 0

.8A -.2B -.2C - .2D 0)

-C + D 0

.002A + .003B + .007C + .008C 1000

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