HW4 - Horizon: 4 Periods Investment Opportunities: I 1 , I...

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IOE 510 – Fall 2008 Homework 4 Due October 1, 2008 1) The cash flows for a firm are shown below. This cash flow is representative of firms that only introduce new products periodically. The expected income is high just after a product has been launched, while expenditures are high as the next new product is designed. Through formulating and solving a LP, describe how and when this firm should invest to maximize total profit over this year.
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Unformatted text preview: Horizon: 4 Periods Investment Opportunities: I 1 , I 2 Policy: All short term investments during a year have to be cashed that year. Maximum invested over the year in any opportunity is 150. 2) Period Expected Income Expected Expenditure 1 200 100 2 180 110 3 150 180 4 170 250 Total 700 640 I 1 I 2 1 0.02 0.01 2 0.05 0.06 3 0.08 0.09 Returns from Short Term Investments Fractional Returns Duration (No. of Periods) 3) 4) 5)...
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HW4 - Horizon: 4 Periods Investment Opportunities: I 1 , I...

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