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Case Study 2: Portfolio Selection 1 Decision Variables

The document describes a portfolio selection case study with the following details: 1. It defines 6 decision variables for investing amounts in different company shares and mutual funds. 2. The objective is to maximize total expected annual return subject to several constraints on investing amounts. 3. The optimal solution allocates funds to 4 company shares and 1 mutual fund to achieve a total expected annual return of 15,400.8.

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Zaima Liza
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54 views2 pages

Case Study 2: Portfolio Selection 1 Decision Variables

The document describes a portfolio selection case study with the following details: 1. It defines 6 decision variables for investing amounts in different company shares and mutual funds. 2. The objective is to maximize total expected annual return subject to several constraints on investing amounts. 3. The optimal solution allocates funds to 4 company shares and 1 mutual fund to achieve a total expected annual return of 15,400.8.

Uploaded by

Zaima Liza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Case study 2: Portfolio selection

1 Decision variables

1 = invested amount in share A of the manufacturing sector

2 = invested amount in share B of the manufacturing sector

3 = invested amount in share C of the food and beverage sector

4 = invested amount in share D of the food and beverage sector

5 = invested amount in mutual fund E

6 = invested amount in mutual fund Z

2 Objective function and constraints

Max z = 0.1541 + 0.1922 + 0.1873 + 0.1354 + 0.1785 + 0.1636 with constraints:

1. 1 + 2 + 3 + 4 + 5 + 6 <= 90.000
2. 1 + 2 + <= 45.000
3. 3 + 4 + <= 45.000
4. 0.81 + 0.22 + 4 + <= 0
5. 0.23 - 0.84 + <= 0
6. 0.11 + 0.92 - 0.13 - 0.14 + <= 0
7. 0.251 - 0.252 + 5 + 6 <= 0

and >= 0, = 1,2, ,6

3 Results of optimal solution

Annual return rate Total expected return


Investment Amount invested
expected (%) of the investment
Share A 27900 15.4 4296.6
Share B 8100 19.2 1555.2
Share C 36000 18.7 6732
Share D 9000 13.5 1215
Mutual fund E 9000 17.8 1602
Mutual fund Z 0 16.3 0
Total 90000 17.11 15400.8
Interpretation of the analysis

The objective function coefficient has an allowable decreases of 0.22478 and an allowable
increases of 0.02244. By adding the allowable increases to the current value, the upper bound
can be retained. This means that the current corner point solution remains optimal as long as
the expected annual return does not go above the upper boundary. If it equals to the upper
boundary, there would be two optimal solution as the objective function would be parallel to
the first constraint. As it is a maximization problem, the increase in the objective function
coefficient value is good. The positive shadow price is good and help to get the optimum
solution.

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