Al Ferris has $60,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in five years. After consulting with his financial advisor, he has been offered four types of fixed-income investments, which we will label as investments A, B, C, and D. Investments A and B are available at the beginning of each of the next five years (call them years 1 to 5). Each dollar invested in A at the beginning of a year returns $1.40 (a profit of $0.40) two years later (in time for immediate reinvestment). Each dollar invested in B at the beginning of a year returns $1.70 three years later. Investments C and D will each be available at one time in the future. Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5. Each dollar invested in D at the beginning of year 5 returns $1.30 at the end of year 5. Click here for the Excel Data File Formulate and solve a linear programming model for this problem on a spreadsheet. a. Which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6? Note: Leave no cells blank. Enter "O" wherever required. Investment A Investment B Investment C Investment D Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 2 Year 5 Dollars Invested b. Determine the ending balance at Year 5. Ending balance
Al Ferris has $60,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in five years. After consulting with his financial advisor, he has been offered four types of fixed-income investments, which we will label as investments A, B, C, and D. Investments A and B are available at the beginning of each of the next five years (call them years 1 to 5). Each dollar invested in A at the beginning of a year returns $1.40 (a profit of $0.40) two years later (in time for immediate reinvestment). Each dollar invested in B at the beginning of a year returns $1.70 three years later. Investments C and D will each be available at one time in the future. Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5. Each dollar invested in D at the beginning of year 5 returns $1.30 at the end of year 5. Click here for the Excel Data File Formulate and solve a linear programming model for this problem on a spreadsheet. a. Which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6? Note: Leave no cells blank. Enter "O" wherever required. Investment A Investment B Investment C Investment D Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 2 Year 5 Dollars Invested b. Determine the ending balance at Year 5. Ending balance
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Al Ferris has $60,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in five years.
After consulting with his financial advisor, he has been offered four types of fixed-income investments, which we will label as
investments A, B, C, and D. Investments A and B are available at the beginning of each of the next five years (call them years 1 to 5).
Each dollar invested in A at the beginning of a year returns $1.40 (a profit of $0.40) two years later (in time for immediate reinvestment).
Each dollar invested in B at the beginning of a year returns $1.70 three years later. Investments C and D will each be available at one
time in the future. Each dollar invested in C at the beginning of year 2 returns $1.90 at the end of year 5. Each dollar invested in D at
the beginning of year 5 returns $1.30 at the end of year 5.
Click here for the Excel Data File
Formulate and solve a linear programming model for this problem on a spreadsheet.
a. Which investment plan maximizes the amount of money that can be accumulated by the beginning of year 6?
Note: Leave no cells blank. Enter "O" wherever required.
Investment A
Investment B
Investment C
Investment D
Year 1
Year 2
Year 3
Year 4
Year 1
Year 2
Year 3
Year 2
Year 5
Dollars Invested
b. Determine the ending balance at Year 5.
Ending balance
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