Question

In: Finance

A trust officer at the Blacksburg National Bank needs to determine how to invest $150,000 in...

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.

  1. Formulate the LP model for this problem.
  2. Create the spreadsheet model and use Solver to solve the problem.

Solutions

Expert Solution

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


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