PERSONAL INVESTMENTS. Consider the situation faced by George Rifkin in problem 17. He has decided to invest the entire $60,000 inheritance. Besides the certificate of deposit paying 6 % and the venture capital group paying a minimum of 3% (but with a potential maximum return of 1 0%), he is considering investing in an oil exploration company. Although this investment could yield a 100% one-year return, George could also lose his entire investment in the company. (Note: Phis is not a 0 % return but a loss of 1 0 0 %.)
a. Formulate and solve a three-variable mathematical model for George that will maximize the potential value of his inheritance after one year, given the following investment criteria:
• At most $30,000 is to be invested in the oil exploration company.
• At least $20,000 is to be invested in the certificate of deposit.
• The value of the portfolio must be at least $40,000 at the start of next year. • All $60,000 is to be invested.
b. What is the maximum potential return? Thus what is the maximum potential value of the portfolio at the beginning of next year? What is the minimum value of the portfolio at the beginning of next year?
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here