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INVESTMENTS PROBLEM(3.4-11)

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PROBLEM

Al Ferris has $60,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in 5 years.

After consulting with his financial adviser, he has been offered four types of fixed-income investments, which we will label as investments A, B, C, D.

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CONSTRAINTS

Investments C and D will each be available at one time in the future.

Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5.

Each dollar invested in D at the beginning of year 5 returns $1.30 at the end of year 5.

Al wishes to know which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6.

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All the functional constraints for this problem can be expressed as equality constraints.

To do this, let At, Bt, Ct, and Dt be the amount invested in investment A, B, C, and D, respectively, at the beginning of year t for each t where the investment is available and will mature by the end of year 5.

Also let Rt be the number of available dollars not invested at the beginning of year t (and so available for investment in a later year).

Thus, the amount invested at the beginning of year t plus Rt must equal the number of dollars available for investment at that time.

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TO DO

Write such an equation in terms of the relevant variables above for the beginning of each of the 5 years to obtain the five functional constraints for this problem.

Formulate a complete linear programming model for this problem.

Solve this model by the simplex model.

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ASSUMPTIONS

At – Amount invested in investment A at the beginning of the year t.

Bt – Amount invested in investment B at the beginning of the year t.

Ct – Amount invested in investment C at the beginning of the year t.

Dt – Amount invested in investment D at the beginning of the year t.

Rt – Amount not invested at the beginning of the year t.

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EQUATIONS

Objective function:Max P= 1.40A1 + 1.70B2 + 1.90C2 + 1.30D5 + Rt

Subject toA1+B1+R1=60,000

A2+B2+C2-R1+R2=0

-1.40A1+A3+B3-R2+R3=0

-1.40A2+A4-1.70B1-R3+R4=0

-1.40A3-1.70B2+D5-R4+R5=0

At >= 0 ,Bt > = 0,Ct >= 0,Dt > = 0,Rt >= 0

A1+B1+R1 =60,000A2+B2+C2+R2 =R1

A3+B3+R3 =R2+1.40A1

A4-1.70B1+R4

=R3+1.40A2

D5+R5

=R4+1.40A3+1.70B2

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SOLUTION

LINGO

Thank you..