fiinacial_planning

fiinacial_planning - 1 2 2 Multi-period ﬁnancial model...

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IEOR 162 NOTES SPRING 2007 1. Financial planning 1. Bank loan policy. Determine a loan policy involving a maximum of \$12 million. The types of loans, interest rate and probability of bad debt are described in the following table. Type of loans Interest rate Probability of bad debt Personal 0 . 140 0 . 10 Car 0 . 130 0 . 07 Home 0 . 120 0 . 03 Farm 0 . 125 0 . 05 Commercial 0 . 100 0 . 02 Bad debts are uncoverable and provide no interest revenue. The restrictions on the loan policy are listed as following: (1). At least 40% of the available loan has to be assigned for farm and commercial loans; (2). Home loans must be at least 50% of total personal, car and home loans; (3). Rate of total bad debts in all investment must not exceed 0 . 04. The manager of the bank want to maximize the expected proﬁt.

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Unformatted text preview: 1 2 2. Multi-period ﬁnancial model Suppose that you have \$100 , 000 to invest. There are 5 possible investment opportunities (for example, bonds, stock, etc.). We refer them as 1 , 2 , 3 , 4 , and 5. The cash ﬂow in the next 3 years are shown in the following table. Investment 0th year 1st year 2nd year 3rd year 1-1 . 5 1 2-1 . 5 1 3-1 1 . 2 4-1 1 . 9 5-1 1 . 5 You can get 8% interest rate from similar bonds on the money market. To diversify the risk, the maximum investment in any single investment is at most \$75 , 000. How can you get the maximum return at the end of the 3rd year?...
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fiinacial_planning - 1 2 2 Multi-period ﬁnancial model...

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