1. 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

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

3. 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

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

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

6. 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