Portfolio selection problem using linear programming

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Reference no: EM132110845

The CWD Brokerage firm has just been instructed that by one of its clients to invest $500,000 for her – money recently obtained through the sale of land holdings in Ohio. The client has a good deal of trust in the investment house, 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:

Municipal bonds should comprise at least 25% of the investment.

At least 30% of the funds should be placed in a combination of electronic firms, aerospace firms and drugs manufacturers.

No more than 50% of the amount invested in municipal bonds should be placed in a high-risk, high –yielding nursing home stock.

Subject to these restraints, the client’s goal is to maximise projected return on investments. The analysts at CWD, aware of these guidelines, prepared a list of quality stocks and bonds and their corresponding rates of return.

Investment Projected Rate of return (%)

Los Angeles Municipal Bonds 5.3

Thompson Electronics, Inc. 6.8

United Aerospace Corp. 4.9

Palmer Drugs 8.4

Happy Days Nursing Home 11.8

Formulate this portfolio selection problem using linear programming.

Reference no: EM132110845

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