You have $10,000 to invest, and three different funds from which to choose. The municipal bond fund has a 7% return, the local bank's CDs have an 8% return, and the high‐risk account has an expected (hoped‐for) 12% return. To minimize risk, you decide not to invest any more than $2,000 in the high‐risk account. For tax reasons, you need to invest at least three times as much in the municipal bonds as in the bank CDs. Assuming the year‐end yields are as expected, what are the optimal investment amounts? a. Choose the unknowns, i.e. variables. State what they are so you know exactly what you are looking for. b. Write your OPTIMIZATION EQUATION. c. Write the constraints as a system of inequalities, usually there are several. d. Graph the system and identify the feasibility region. e. Identify the corners of the feasibility region, which will be the ordered pairs that you test in your optimization equation. f. Calculate the value of the optimization equation using each of the ordered pairs (from step 5) to determine which of them has the maximum or minimum values desired. State specifically what the best result is and why.
You have $10,000 to invest, and three different funds from which to choose. The municipal bond fund has a 7% return, the local bank's CDs have an 8% return, and the high‐risk account has an expected (hoped‐for) 12% return. To minimize risk, you decide not to invest any more than $2,000 in the high‐risk account. For tax reasons, you need to invest at least three times as much in the municipal bonds as in the bank CDs. Assuming the year‐end yields are as expected, what are the optimal investment amounts?
a. Choose the unknowns, i.e. variables. State what they are so you know exactly what you are looking for.
b. Write your OPTIMIZATION EQUATION.
c. Write the constraints as a system of inequalities, usually there are several.
d. Graph the system and identify the feasibility region.
e. Identify the corners of the feasibility region, which will be the ordered pairs that you test in your optimization equation.
f. Calculate the value of the optimization equation using each of the ordered pairs (from step 5) to determine which of them has the maximum or minimum values desired. State specifically what the best result is and why.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
