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Al Ferris has $60,000 that he wishes to invest now in order
to use the accumulation for purchasing a retirement annuity in 5 years.
After consulting with his financial adviser, he has been
offered four types of fixed-income investments, which we will label as investments A, B, C, D.
Investments C and D will each be available at one time in the future.
Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5. Each dollar invested in D at the beginning of year 5 returns $1.30 at the end of year 5.
Al wishes to know which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6.
All the functional constraints for this problem can be expressed
as equality constraints.
To do this, let At, Bt, Ct, and Dt be the amount invested in
investment A, B, C, and D, respectively, at the beginning of year t for each t where the investment is available and will mature by the end of year 5.
Also let Rt be the number of available dollars not invested at the
beginning of year t (and so available for investment in a later year). Thus, the amount invested at the beginning of year t plus Rt must equal the number of dollars available for investment at that time.
Write such an equation in terms of the relevant variables
above for the beginning of each of the 5 years to obtain the five functional constraints for this problem.
Formulate a complete linear programming model for this
Solve this model by the simplex model.
At – Amount invested in investment A at the beginning of
the year t. Bt – Amount invested in investment B at the beginning of the year t. Ct – Amount invested in investment C at the beginning of the year t. Dt – Amount invested in investment D at the beginning of the year t. Rt – Amount not invested at the beginning of the year t.
Max P= 1.40A1 + 1.70B2 + 1.90C2 + 1.30D5 + Rt
A1+B1+R1=60,000 A2+B2+C2-R1+R2=0 -1.40A1+A3+B3-R2+R3=0 -1.40A2+A4-1.70B1-R3+R4=0 -1.40A3-1.70B2+D5-R4+R5=0
A1+B1+R1 =60,000 A2+B2+C2+R2 =R1 A3+B3+R3 =R2+1.40A1 A4-1.70B1+R4 =R3+1.40A2 D5+R5 =R4+1.40A3+1.70B2
At >= 0 ,Bt > = 0,Ct >= 0,Dt > = 0,Rt >= 0