BUS 404 ON2 ASSIGNMENT 2
BUS 404
Assignment 2
SANCHI SEHGAL
300176822
Sanchi.Sehgal@student.ufv.ca
CRN: 50449
BUS 404 (ON2)
CRN: 50449
BUS 404 (ON2)
SUBMITTED BY: Sanchi Sehgal
SUBMITTED TO: Joe Llsever
BUS 404 ON2 ASSIGNMENT 2
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1.)
A bank has $650,000 in assets to allocate among investments in bonds, home mortgages,
car loans, and personal loans. Bonds are expected to produce a return of 10%,
mortgages 8.5%, car loans 9.5%, and personal loans 12.5%. To make sure the portfolio
is not too risky, the bank wants to restrict personal loans to no more than the 25% of
the total portfolio. The bank also wants to ensure that more money is invested in
mortgages than personal loans. The bank also wants to invest more in bonds than
personal loans.
A) Formulate an LP model for this problem with the objective of maximizing the
expected return on the portfolio.
B) Implement your model in a spreadsheet and solve it.
C) What is the optimal solution?
Answer:
The answer report for the above question is as follows:
Limit report for the question is as follows:
BUS 404 ON2 ASSIGNMENT 2
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A.)
Formulating an LP model for the problem as follows:
Decision variables:
X1 = Amount invested in bonds
X2 = Amount invested in mortgages
X3 = Amount invested in car loans
X4 = Amount invested in personal loans
Objective functions:
Maximize: Z = 0.10X1 + 0.085X2 + 0.095X3 + 0.125X4
Subject to:
X1 + X2 + X3 + X4 < 650,000 (Total investment)
X4 < 0.25*(X1 + X2 + X3 + X4) (Risk constraint 1- personal loans no more than 25% of total
portfolio)
X4 – X2 < 0 (Risk constraint 2- money invested in personal loans should be less than
mortgages)
X4 – X1 < 0 (Risk constraint 3- money invested in personal loans should be less than bonds)
X1, X2, X3, X4 > 0 (non-negativity constraints)
B.)
Preparing a spreadsheet model as follows:
The following is my screen shot from excel spread sheet.
BUS 404 ON2 ASSIGNMENT 2
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Hence, the maximum value of expected return in portfolio would be $ 66,625.
C.)
The optimal solution obtained with the help of spreadsheet model is shown below:
Amount invested in bonds (X1) = $325,000
Amount invested in mortgages (X2) = $162,500
Amount invested in car loans (X3) = $0
Amount invested in personal loans(X4) = $162,500
Therefore, the optimal value is $66,625.
2.)
BUS 404 ON2 ASSIGNMENT 2
Answer:
A.)
Formulating the linear programming problem using given the data given in the question:
Decision variables:
X1 = Total units of HL cards required to be produced.
X2 = Total units of FL cards required to be produced.
X3 = Total units of SL cards required to be produced.
X4 = Total units of ML cards required to be produced.
X5= Total units of EL cards required to be produced.
Objective Function:
