Question & Answer: Hi, Sir. I want to know this problem. This problem is number 4 of chapter 13 in Business…..

Problem A business student has $2,500 available from a summer job and has identified three potential stocks in which to invest. The cost per share and expected return over the next 2 years is given in the table. Stock A BC Price/share $25 $15 $30 Return/share $8 $7 $11 a. Identify the decision variables, objective function, and constraints in simple verbal statements. b. Mathematically formulate a linear optimization model.

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I want to know this problem.

This problem is number 4 of chapter 13 in Business Analytisc 2ed.

SA business student has $2,500 available from a summer job and has identified three potential stocks in which to invest. The cost per share and expected return over the next 2 years is given in the table. a. Identify the decision variables, objective function, and constraints in simple verbal statements. b. Mathematically formulate a linear optimization model.

Expert Answer

Answer

a) Let X1 be the quantity of stock A purchased, X2 be the quantity of stock B purchasd and X3 be the quantity of stock C purchased . The decision variables are X1 , X2 & X3   i.e. how much quantity of stock A , B & C should be purchased to maximize the returns of the investor . The constraint is the maximum money available with the investor to make the investment . The money available with the investor is $ 2500 .

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b) The objective is to maximize the returns and hence the objective function will be

Maximize Z = $ 8X1 + $7X2 + $11X3

The constraint is the maximum money available with the investor to make the investment . The money available with the investor is $ 2500 .

The constraint equation will be

$25X1 + $15X2 + $30X3 leq $ 2,500

X1 , X2 , X3geq0

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