InClassCase2 - PeopleInvestSampleWriteup

InClassCase2 - PeopleInvestSampleWriteup - OSCM 230 Linear...

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OSCM 230 Management Science Linear Programming: Sample Case Write-up Professor Dong P EOPLE EOPLE S I I NVESTMENT NVESTMENT C C ORPORATION ORPORATION L INGXIU D ONG , I NVESTMENT A DVISOR Mr. Fred Wheeler Wheeler's Wheels, Inc. 123 Revemup Boulevard Atlanta, GA 30305 January 30, 2007 Dear Mr. Wheeler: Per our discussion of your investment needs, I recommend the following portfolio for your investment: General Lee's Barbecue Huts $80,000 First General REIT $60,933 Western California Electirc $80,000 San Marcos Rapid Transit $10,000 Gala Apartment Partnership $80,000 T-Bill Account $73,067 Money Market Fund $1,000 All Saver's Certificate $15,000 $400,000 The portfolio would have an expected return of $61,513. As we also discussed, changing your maximum investment in Z Corporation stocks and bonds would not affect your return. By requiring that at least $2,000 be invested in the Money Market Fund, your portfolio's return would drop $1.53 to $61,511.47. If you reduce your amount allowed to be invested in debt to $75,000, your portfolio's return would drop $20 to $61,493. We are assuming that the estimated annual after-tax returns (EAATR) will remain as stated. However, you voiced a concern over what would happen to the portfolio if some of the EAATR's changed. If General Lee's Barbecue Huts' return increased to 17.5%, your return would also increase $400 to $61,913. If the Money Market Fund EAATR reduces to 10%, the portfolio return would fall $5 to $61,498. If the Z Corporation Bonds' EAATR increases to 13%, your portfolio would increase $87 to $61,600. Please call my office at your convenience if you have any questions regarding the portfolio or if you wish to invest. Sincerely, Lingxiu Dong Investment Advisor, People's Investment 1
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OSCM 230 Management Science Linear Programming: Sample Case Write-up Professor Dong ATTACHMENT I: Calculations for People's Investment Analysis The decision variables are defined as follows: Let EZ = $ invested in Equities - Z Corporation EG = $ invested in Equities - General Lee's Barbecue E/RF = $ invested in Equities/Real Estate - First General REIT DW = $ invested in Debt - Western California Electric DZ = $ invested in Debt - Z Corporation DS = $ invested in Debt - San Marcos Rapid Transit RG = $ invested in Real Estate - Gala Apartment Partnership MT = $ invested in Money - T-Bill Account MM = $ invested in Money - Money Market Fund MA = $ invested in Money - All Saver's Certificates (1) Fred's recommended portfolio comes from the optimal values maximization of the return: Objective: Max .15 EZ + .17 EG +.175 E/RF + .118 DW + .122 DZ + .12 DS + .22 RG + .096 MT + .105 MM + .126 MA S.T. (1) EG + E/RF + DW + DZ + DS + RG + MT + MM + MA 400000 (2) 100 EZ + 100 EG + 100 E/RF + 95 DW + 92 DZ + 79 DS + 80 MT + 100 MM 65 (EG + E/RF + DW + DZ + DS + RG + MT + MM + MA) (3) 60 EZ + 70 EG + 75 E/RF + 20 DW + 30 DZ + 22 DS + 50 RG + 10 MM 40 (EG + E/RF + DW + DZ + DS + RG + MT + MM + MA) (4) EZ + EG + E/RF 0.4 (EG + E/RF + DW + DZ + DS + RG + MT + MM + MA)
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InClassCase2 - PeopleInvestSampleWriteup - OSCM 230 Linear...

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