Ivana Myrocle wishes to invest her inheritance of $200,000

Ivana Myrocle wishes to invest her inheritance of $200,000 so that her return on investment is maximized, but she also wishes to keep her risk level relatively low. She has decided to invest her money in any of three possible ways: CDs, which pay a guaranteed 6 percent; stocks, which have an expected return of 13 percent; and a money market mutual fund, which is expected to return 8 percent. She has decided that any or all of the $200,000 may be invested, but any part (or all) of it may be put in any of the 3 alternatives. Thus, she may have some money invested in all three alternatives. In formulating this as a linear programming problem, define the variables as follows:

C= dollars invested in CDs

S = dollars invested in stocks

M = dollars invested in the money market mutal fund

According to Table 8-5, which describes an investment problem, suppose that Ivana has assigned the following risk factors to each investment instrument CDs (C): 1.2; stocks (S): 4.8; money market mutual fund (M): 3.2. If Ivana decides that she wants the risk factor for the whole investment to be less than 3.3, how should the necessary constraint be written?

1.2C + 4.8S + 3.2M 3.3

C + S + M 3.3

1.2C + 4.8S + 3.2M 3.3(C + S + M)

(1.2C + 4.8S + 3.2M)/3 3.3

S = 0

 

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