In: Finance
A trust officer at the Blacksburg National Bank needs to determine how to invest $150,000 in the following collection of bonds to maximize the annual return.
Bond |
Annual Return |
Maturity |
Risk |
Tax Free |
A |
9.5% |
Long |
High |
Yes |
B |
8.0% |
Short |
Low |
Yes |
C |
9.0% |
Long |
Low |
No |
D |
9.0% |
Long |
High |
Yes |
E |
9.0% |
Short |
High |
No |
PLEASE SHOW STEP BY STEP spreadsheet models and solver.
The officer wants to invest at least 40% of the money in short-term issues and no more than 20% in high-risk issues. At least 25% of the funds should go in tax-free investments, and at least 45% of the total annual return should be tax free.
The LP spreadsheet model is built as below :
This is solved using Solver as below :
The solver solution is below :
This solution maximizes annual return subject to the given constraints