Question: Porter Investments needs to develop an investment portfolio from the following list of possible investments:
| Investments |
Cost |
Expected
Return |
| A |
15,000 |
1,700 |
| B |
17,000 |
1,850 |
| C |
8,500 |
1,400 |
| D |
10,000 |
1,500 |
| E |
13,500 |
1,750 |
| F |
13,000 |
1,650 |
| G |
9,000 |
1,500 |
| H |
9,500 |
1,700 |
The client can invest up to $100,000. The following conditions should be met: (1) If investment C is chosen, then investment D must also be part of the portfolio, (2) at least four investments should be chosen, (3) of investment A and B, exactly one of these investments should be included, (4) of investments F,G,H - exactly two of these should be included in the portfolio. What investments should be included in the portfolio? Remember the investments is either included or not - it cannot be partially included and multiples of the investment cannot be included. Formulate this as a binary linear program and solve in Excel. The objective should be to maximize total return.
a) How many decision variables does this problem have?
b) Not counting the non-negativity constraint - how many constraints does this problem have?
c) What is the total return for the portfolio?
d) Which investments should be included in the portfolio?