recex8(2) - ORIE 3300/5300 Prof. Bland Recitation Exercise...

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ORIE 3300/5300 Fall 2011 Prof. Bland Recitation Exercise 8 Due at the conclusion of your recitation section. . 1. The problem below is from the textbook by Bradley, Hax, and Magnanti (see the Links folder on the course website to a free download site for the book. This problem is described on pp. 8-9 and the first 2 lines on p. 10 in the pdf of Chapter 1). A portfolio manager in charge of part of a bank portfolio has $10 million to invest. The securities available for purchase, as well as their respective quality ratings, maturities, and yields are shown in the table below: Bond Bond Type Bank’s QS Years to Maturity Yield to Maturity After Tax Yield A Municipal 2 9 4.3% 4.3% B Agency 2 15 5.4 2.7 C Government 1 4 5.0 2.5 D Government 1 3 4.4 2.2 E Municipal 5 2 4.5 4.5 The bank places the following policy limitations on the portfolio manager’s actions: (1) Government and agency bonds must total at least $4 million. (2) The average quality on the portfolio (from the third column of the table) cannot exceed 1.4 on the bank’s scale. (Note that a low number corre-
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This note was uploaded on 10/31/2011 for the course OR&IE 3300 at Cornell University (Engineering School).

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recex8(2) - ORIE 3300/5300 Prof. Bland Recitation Exercise...

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