An investor has $70,000 to divide among several instruments

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An investor has $70,000 to divide among several instruments. Municipal bonds have an 8.5% return, C D’s a 5% return, t-bills a 6.5% return, and growth stock 13%.

The following guidelines have been established:

1. No more than 20% in municipal bonds
2. Investment in growth stock fund should be greater than other three alternatives.
3. At least 10% invested in treasury bills and municipal bonds
4. Less should be invested in treasury bills and growth stocks than in CDs and municipal bonds by a ratio of 1.2 to 1.
5. All $70,000 should be invested.

Formulate a model and solve it using computer. How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?

Notes:

• Attach a Linear Programming computer file of the solution (QM for Windows - save it as a ".lin" file). Mac computer file is not accepted.
• Attach a Word file to answer the questions: How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?
• Watch chapter 4 video clips
  • Refer to “Investment Example” video for the model formulation
  • Refer to “Product Mix Example Using QM for Windows” video clip for the computer solution