Kelly Devilbiss; Problem 8-2 Investment = $250,000 Municipal bonds should constitute at least 20% of the investment. At least 40% of the funds should be placed in a combination of electronic firms, aerospace firms, and drug manufacturers. No more than 50% of the amount invested in municipal bonds should be placed in a high-risk, high-yield nursing home stock. Investment Projected Rate of Return (%) Los Angeles Municipal Bonds 5.3 Thompson Electronics, Inc. 6.8 United Aerospace Corp. 4.9 Palmer Drugs 8.4 Happy Days Nursing Homes 11.8 Kelly Devilbiss; Problem 8-2

Kelly Devilbiss; Problem 8-2 Let: X1 = Dollars invested in Los Angeles Municipal Bonds X2 = Dollars invested in Thompson Electronics, Inc. X3 = Dollars invested in United Aerospace Corp. X4 = Dollars invested in Palmer Drugs X5 = Dollars invested in Happy Days Nursing Homes Kelly Devilbiss; Problem 8-2

Kelly Devilbiss; Problem 8-2 Objective: Maximize projected return on investments Subject to: X1 + X2 + X3 + X4 + X5 = 250,000 X1 > .20 (X1 + X2 + X3 + X4 + X5) X2 + X3 + X4 > .40 (X1 + X2 + X3 + X4 + X5) X5 ≤ .50 (X1) X1 , X2 , X3 , X4 , X5 ≥ 0 Kelly Devilbiss; Problem 8-2

Kelly Devilbiss; Problem 8-2 Using QM for Windows Kelly Devilbiss; Problem 8-2

Kelly Devilbiss; Problem 8-2 Solve: Kelly Devilbiss; Problem 8-2

Kelly Devilbiss; Problem 8-2 Answer: Invest: $50,000 in Los Angeles Municipal Bonds $175,000 in Palmer Drugs $25,000 in Happy Days Nursing Homes Kelly Devilbiss; Problem 8-2