2. The esteemed brokerage firm of Black, Scholes and Merton has just been instructed byone of its clients to invest $250,000 of her money obtained recently through the sale ofNetflix, Inc. The client has a good deal of trust in the brokerage firm, but she also has herown ideas about the distribution of the funds being invested. In particular, she requeststhat the firm select whatever stocks and bonds they believe are well rated, but within thefollowing guidelines:a. Municipal bonds should constitute at least 20% of the investmentb. At least 40% of the funds should be placed in a combination of electronic firms,airline firms and drug manufacturersc. No more than 50% of the amount invested in municipal bonds should be placed in ahigh risk, high yield nursing home stock.Subject to these constraints, the client's goal is to maximize projected return on investment. Thefirm of Black, Scholes and Merton, aware of these guidelines, prepare a list of high-qualitystocks and bonds and their corresponding rates of return:InvestmentProjected Rate of Return (%)Bruderheim municipal bonds5.3SAMU Electronics6.8Westplane AirlinesTrudeau DrugsHappy Days Nursing Homes4.98.411.8Formulate the problem algebraically a linear programming model for this problem.

Question
Asked Feb 25, 2020
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2. The esteemed brokerage firm of Black, Scholes and Merton has just been instructed by
one of its clients to invest $250,000 of her money obtained recently through the sale of
Netflix, Inc. The client has a good deal of trust in the brokerage firm, 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,
airline 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 constraints, the client's goal is to maximize projected return on investment. The
firm of Black, Scholes and Merton, aware of these guidelines, prepare a list of high-quality
stocks and bonds and their corresponding rates of return:
Investment
Projected Rate of Return (%)
Bruderheim municipal bonds
5.3
SAMU Electronics
6.8
Westplane Airlines
Trudeau Drugs
Happy Days Nursing Homes
4.9
8.4
11.8
Formulate the problem algebraically a linear programming model for this problem.
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2. The esteemed brokerage firm of Black, Scholes and Merton has just been instructed by one of its clients to invest $250,000 of her money obtained recently through the sale of Netflix, Inc. The client has a good deal of trust in the brokerage firm, 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, airline 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 constraints, the client's goal is to maximize projected return on investment. The firm of Black, Scholes and Merton, aware of these guidelines, prepare a list of high-quality stocks and bonds and their corresponding rates of return: Investment Projected Rate of Return (%) Bruderheim municipal bonds 5.3 SAMU Electronics 6.8 Westplane Airlines Trudeau Drugs Happy Days Nursing Homes 4.9 8.4 11.8 Formulate the problem algebraically a linear programming model for this problem.

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Step 1

The question is based on the concept of formulation of linear programming model (LPM). A LPM refers to translating the real-world problem into the form of mathematical equations which could be solved by following steps as

  • Step 1: decide number of decision variables
  • Step 2: Find the ...

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