Reconsider the Welte Mutual Funds problem from Section 9.2.

Define your decision variables as the fraction of funds invested in each security. Also, modify the constraints limitin investments in the oil and steel industries as follo!s" #o more than $%& of the total funds invested in stoc' (oil and steel) may be invested in the oil industry, and no more than $%& of the funds invested in stoc' (oil and steel) may be invested in the steel industry. a. Solve the revised linear pro rammin model. What fraction of the portfolio should be invested in each type of security* b. +o! much should be invested in each type of security* c. What are the total earnin s for the portfolio* d. What is the mar inal rate of return on the portfolio* ,hat is, ho! much more could be earned by investin one more dollar in the portfolio* SOLUTION a. -et each decision variable, A, ., M, + and /, represent the fraction or proportion of the total investment placed in each investment alternative. Ma0 s.t. .%12A A .$A 8.$A 8.5A 3 .4%2. 3 .%56M 3 3 8 3 . 3 M .$. 8 .$M .$. 3 .$M 8 .2$M .6. 3 .%1$+ 3 + 8 .$+ 3 .$+ 8 .2$+ 3 .%6$/ 3 / 4 % % % %

7 9 9 3 / : : A, ., M, +, / 9 %

Solution" ;b<ective function 7 %.%19 !ith Atlantic ;il .acific ;il Mid!est ;il +uber Steel /overnment >onds 7 %.41= 7 %.251 7 %.%%% 7 %.666 7 %.444

b.

For a total investment of ?4%%,%%%, !e sho! Atlantic ;il .acific ;il Mid!est ;il +uber Steel /overnment >onds ,otal 7 ?41,=%% 7 7 7 7 25,1%% %.%%% 66,6%% 44,4%%

?4%%,%%%

c. d.

,otal earnin s 7 ?4%%,%%% (.%19) 7 ?1,9%% Mar inal rate of return is .%19