Reference no: EM132417789

Problem: You are trying to decide how to invest $12 million in domestic and foreign stocks (as a fortune cookie once said, if you apply IE 335, great success will be your neighbor). Domestic stocks have been returning 11% per year and foreign 17%. Naturally, you would like to maximize the annual return from your investments. But you want to exercise some caution. No more than 10 million should go into domestic stocks and no more than 7 million into foreign. Also,at least half as much should be invested in foreign as domestic, and at least half as much in domestic as foreign to maintain some balance.

Required:

Question 1: Formulate an optimization model with 5 main constraints to decide your optional investment plan using decision variables xd millions invested in domestic stocks and xf for millions invested in foreign stocks. For each constraints formula, explain what the formula is encoding.

Question 2: Solve the problem graphically (feel free to use Matlab or similar software to plot the constraint boundaries and also some contours, but shade in (using Matlabor by hand) the feasible region).

Question 3: On a separate plot, solve the same problem graphically but with the rates of return being equal (both 15%).