Business
Engineering
Math
Science
Social Science
James Judson is the financial manager in charge of the company pension fund at Armco Incorporated. James knows that the fund must be sufficient to make the payments listed in Table 4.4. Each payment must be made on the first day of each year. James is going to finance these payments by purchasing bonds. It is currently January 1 of year 1, and three bonds are available for immediate purchase. The prices and coupons for the bonds are as follows. (We assume that all coupon payments are received on January 1 and arrive in time to meet cash demands for all the year on which they arrive.) Bond 1 costs $980 and yields a $60 coupon in the years 2 through 5 and a $1060 payment on maturity in the year 6. Bond 2 costs $970 and yields a $65 coupon in the years 2 through 11 and a $1065 payment on maturity in the year 12. Bond 3 costs $1050 and yields a $75 coupon in the years 2 through 14 and a $1075 James must decide how much cash to allocate (from company coffers) to meet the initial $11,000 payment and buy enough bonds to make future payments. He knows that any excess cash on hand can earn an annual rate of 4% in a fixed-rate account. How should he proceed? In the pension fund model, suppose there is an upper limit of 60 on the number of bonds of any particular type that can be purchased. Modify the model to incorporate this extra constraint and then reoptimize. How much more money does James need to allocate initially?
Practical Management Science
Practical Management Science
James Judson is the financial manager in charge of the company pension fund at Armco Incorporated. James knows that the fund must be sufficient to make the payments listed in Table 4.4. Each payment must be made on the first day of each year. James is going to finance these payments by purchasing bonds. It is currently January 1 of year 1, and three bonds are available for immediate purchase. The prices and coupons for the bonds are as follows. (We assume that all coupon payments are received on January 1 and arrive in time to meet cash demands for all the year on which they arrive.)
- Bond 1 costs $980 and yields a $60 coupon in the years 2 through 5 and a $1060 payment on maturity in the year 6.
- Bond 2 costs $970 and yields a $65 coupon in the years 2 through 11 and a $1065 payment on maturity in the year 12.
Bond 3 costs $1050 and yields a $75 coupon in the years 2 through 14 and a $1075
James must decide how much cash to allocate (from company coffers) to meet the initial $11,000 payment and buy enough bonds to make future payments. He knows that any excess cash on hand can earn an annual rate of 4% in a fixed-rate account. How should he proceed?
In the pension fund model, suppose there is an upper limit of 60 on the number of bonds of any particular type that can be purchased. Modify the model to incorporate this extra constraint and then reoptimize. How much more money does James need to allocate initially?
To modify: The given model to include the extra constraint and to find the optimal solution and also determine the extra money Person J needs to allocate in the initial stages.
Linear programming:
It is a mathematical modeling procedure where a linear function is maximized or minimized subject to certain constraints. This method is widely useful in making a quantitative analysis which is essential for making important business decisions.
Explanation of Solution
Excel model:
Solver input:
The solver input is selected from under the “Data” tab in Excel and the input is given as shown below:
Formula:
Chapter 4 Solutions
Additional Business Textbook Solutions
Purchasing and Supply Chain Management
Financial & Managerial Accounting
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Accounting Information Systems
College Accounting (Book Only): A Career Approach
Financial Accounting
Fundamentals of Financial Management (MindTap Course List)
STATISTICS F/BUSINESS+ECONOMICS-TEXT
MKTG 12:STUDENT ED.-TEXT
Accounting (Text Only)
Financial And Managerial Accounting
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Managerial Accounting: The Cornerstone of Business Decision-Making
Foundations of Business (MindTap Course List)
Cornerstones of Cost Management (Cornerstones Series)
Economics For Today
Principles of Macroeconomics (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Intermediate Accounting: Reporting And Analysis
Management, Loose-Leaf Version
Corporate Financial Accounting
Exploring Economics
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Principles of Microeconomics (MindTap Course List)
Pkg Acc Infor Systems MS VISIO CD
Principles of Economics (MindTap Course List)
College Accounting (Book Only): A Career Approach
Corporate Financial Accounting
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Contemporary Marketing
Survey of Accounting (Accounting I)
Financial Accounting
Statistics for Business & Economics, Revised (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Accounting Information Systems
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Brief Principles of Macroeconomics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Essentials of Economics (MindTap Course List)
College Accounting, Chapters 1-27
Economics (MindTap Course List)
Financial & Managerial Accounting
Understanding Management (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics
Micro Economics For Today
Managerial Accounting
MACROECONOMICS FOR TODAY
Macroeconomics: Private and Public Choice (MindTap Course List)
Cornerstones of Financial Accounting
