Question

An investor is considering allocating $10,000 among five investment alternatives. The five alternatives and their respective fund categories, risk levels, and average annual returns are shown below:

Name of Fund Category of Fund Risk Level Average Annual Return

Adams Money Market Fund 1 4.50%

Barney Money Market Fund 2 5.62%

Chilton Bond Fund 2 6.80%

Dunster Bond Fund 3 10.15%

Excelsior Aggressive Growth Fund 5 20.60%

The risk level of each investment is rated on a scale of 1 to 5, where 1 is very conservative and 5 is very risky. The investor would like to maximize the average annual return on his investment subject to the following restrictions:

The weighted average risk level of the entire investment should not exceed 2.5, where the weight of each fund is proportional to the amount of money invested into the fund.

At least 30% of the investment should be placed in money market funds.

At most $2,000 should be invested in the aggressive growth fund.

Let A, B, C, D, E denote the amounts of money invested in Funds Adams, Barney, Chilton, Dunster and Excelsior, respectively. Construct the math model using the decision variables defined to solve this decision problem

Solve your math model using Excel solver to determine the optimal allocation of the investor’s money. To submit your answer, please provide numerical values as accurate as possible

The maximum average annual return is =

A =

B =

C =

D =

E =

Solve your math model using Excel solver to determine the optimal allocation of the investor’s money. To submit your answer, please provide numerical values as accurate as possible

The maximum average annual return is $1.

A = 2.

B = 3.

C = 4.

D = 5

b) How many binding constraints do we have at least to solve this problem?

c)What are the binding constraints for the optimal solution identified?

Answer 1