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LPP Problem Solutions
LPP Problem Solutions
The bank has chosen a set of five investment with subjective estimates of rates of return and risk as follows:-
The bank officer woul like to maximize the average annual rate of the return on the portfolio. However the wealthy
investor has specified that the average risk of the portfolio should not exceed 2 and investment in real estate shoul
exceed 20% of the total investment.
Q2 A mutual fund company has Rs 20 lakhs available for investmen. The mutual fund is required to keep atleast Rs 2 la
in short term deposit and not to exceed average risk factor of 42. Speculative stocks must be atmost 20% of the tot
amount invested.
Q3 Mr Krishnan Murthy recently received his retirement benfits. He is contemplating as to how much funds he should
in various alternatives so as to maximize return on investment. The data on the return on investment, the no. of ye
for which the funds will be blocked to earn this return on investment and estimated risk is mentioned below.
He has decided that the average risk should not be more than 4 and the funds should not be locked up for
more than 15 years.
and risk as follows:-
t be locked up for
Q1 The agro promotion bank is trying to select investment portfolio for a cotton farmer.
The bank has chosen a set of five investment with subjective estimates of rates of return and risk as foll
The bank officer woul like to maximize the average annual rate of the return on the portfolio. However t
investor has specified that the average risk of the portfolio should not exceed 2 and investment in real e
exceed 20% of the total investment.
Solution
Investment Tax free Municipal Bond Corporate Bond Common Stock
Variable X1 X2 X3
Annual Rate 6% 8% 5%
Risk 1.3 1.5 1.9
Answer 0 0.8 0
Objective function
Maximize 0.094
Constraints
1 1
Risk 1.74 <= 2
0.2 <= 0.2
Formulation
Investment Government bond Blue Chip stock Speculative stock
Variable X1 X2 X3
Annual Rate 14% 19% 23%
Risk 12 24 48
Answer 0
Objective function
Maximize 0
Constraints
0 2000000
Risk 0 <= 0
0 <= 0
0 >= 200000
None Negativity Constraints
X1,X2,X3,X4>=0
Solver Solution
Objective function
Maximize 382000
Constraints
2000000 2000000
Risk 54000000 <= 84000000
400000 <= 400000
200000 >= 200000
None Negativity Constraints
X1,X2,X3,X4>=0
und is required to keep atleast Rs 2 lakhs
stocks must be atmost 20% of the total
He has decided that the average risk should not be more than 4 and the funds should not be locked up for
more than 15 years.
Formulation
Formulation
Investment Government Security Company deposit Equity Shares
Variable X1 X2 X3
Annual Rate 6% 15% 20%
Risk 1 3 7
No of Years 15 3 6
Answer 0 0.375 0.325
Objective function
Maximize 0.19625
Constraints
1 1
Risk 4 <= 4
6.075 <= 15
0.3 <= 0.3
None Negativity Constraints
X1,X2,X3,X4,x5,x6>=0
ntemplating as to how much funds he should invest
ata on the return on investment, the no. of years
and estimated risk is mentioned below.
Risk
1
3
7
1
7
2