Question: Investment Decision

Formulate the problem in a standard LP mathematical model, solve it using Excel Solver, describe in details how you structure the model in Excel spreadsheet, what are your optimal solutions, and please attach your Excel spreadsheet file along with the submission.

(Investment decision problem) The Heinlein and Krampf Brokerage firm has just been instructed by one of its clients to invest $250,000 for her money obtained recently through the sale of land holdings in Ohio. The client has a good deal of trust in the investment house, but she also has her own ideas about the distribution of the funds being invested. In particular, she requests that the firm select whatever stocks and bonds they believe are well rated, but within the following guidelines:

A. Municipal bonds should constitute at least 20% of the investment

B. At least 40% of the funds should be placed in a combination of electronic firms, aerospace firms, and drug manufacturers.

C. No more than 50% of the amount invested in municipal bonds should be placed in a high risk, high yield nursing home stock.

Subject to these restraints, the client’s goal is to maximize projected return on investments. The analysts at Heinlein and Krampf, aware of these guidelines, prepare a list of high quality stocks and bonds and their corresponding return:

Investment Projected Rate of return (%)

Los Angeles municipal bonds 5.3

Thompson Electronics, Inc 6.8

United Aerospace Corp 4.9

Palmer Drugs 8.4

Happy Days Nursing Homes 11.8

(a) Formulate this portfolio selection problem using LP.

(b) Solve this problem.