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   1. A mutual fund company has cash resources of birr 200 million for investment in a diversified portfolio. Table below shows the opportunity available, their estimated yields, risk factors and term period of details. 

   Investment type	Annual yield (%)	Risk factor	Time period(years)
   Bank deposit	9.5	0.02	6
   Treasury notes	8.5	0.01	4
   Corporate deposits	12.0	0.08	3
   Blue chip stocks	15.0	0.25	5
   Speculative stocks	32.5	0.45	3
   Real estates	35.0	0.04	10

    

   Formulate the L.P. model to find the optimal portfolio that will maximize return, considering the following policy guidelines: (5pts) 

   1. All funds available may be invested 
   2. Weighted average period of at least 5 years should be the planning horizon
   3. Weighted average risk factor must not exceed 0.20
   4. Investment in real estate and speculative stocks together must not be more than 25% of the money invested

Answer rating: 100% (QA)

To formulate the linear programming LP model for finding the optimal portfolio we can define the dec... View the full answer