Drexel Investments manages portfolios for a number of wealthy clients.

They consider three investment types for

their clients: a growth stock fund, an income fund, and a money market fund. For diversification purposes, they
impose the following minimum and maximum percentages for each type of investment in each portfolio

Investment Type Minimum % Maximum %

Growth Stock Fund 20% 40%
Income Fund 20% 50%
Money Market Fund 30% 60%

The risk index and the annual yield forecast for each type of investment are as follows:

Investment Type Risk Index Annual Yield

Growth Stock Fund 0.1 18.00%
Income Fund 0.07 12.50%
Money Market Fund 0.01 7.50%

Drexel has a new client with $800,000 to invest, and he would like the weighted average risk index of his portfolio to
be no more than 0.05. Help Drexel come up with an investment plan that maximizes the expected annual yield of this
client's portfolio.

New Investment $ 800,000.00 Risk Index 0.055

a) If the client's risk index is increased to 0.055, how would the portfolio yield be affected?

Return Min Max Risk

Growth Stock Fund 0.18 0.2 0.4 0.1
Income Fund 0.125 0.2 0.5 0.07
Money Market Fund 0.075 0.3 0.01

Max Risk 0.055

Total funds Available $ 800,000.00

Model
Allocation
Growth $ 293,333.33 Annual Yield 12.35%
Income $ 160,000.00
Money Market $ 346,666.67
Total $ 800,000.00
Risk $ 44,000.00
Return $ 98,800.00

b) If the annual yield for the growth stock fund decreased to 16%, how would the portfolio allocation be affected?
 Return Min Max Risk
Growth Stock Fund 0.16 0.2 0.4 0.1
Income Fund 0.125 0.2 0.5 0.07
Money Market Fund 0.075 0.3 0.01

Max Risk 0.055

Total funds Available $ 800,000.00

Model
Allocation
Growth $ 248,888.89 Annual Yield 11.14%
Income $ 160,000.00
Money Market $ 391,111.11
Total $ 800,000.00
Risk $ 40,000.00
Return $ 89,155.56

c) The client wants to add a constraint to ensure that the amount in the growth stock fund is no more than the
amount invested in the income fund. Would this change the portfolio allocation - if so, how?

Return Min Max Risk

Growth Stock Fund 0.18 0.2 0.4 0.1
Income Fund 0.125 0.2 0.5 0.07
Money Market Fund 0.075 0.3 0.01

Max Risk 0.055

Total funds Available $ 800,000.00

Model
Allocation
Growth $ 213,333.33 Annual Yield 11.63%
Income $ 213,333.33
Money Market $ 373,333.33
Total $ 800,000.00
Risk $ 40,000.00
Return $ 93,066.67

d) If the risk index of the income fund is revised downward to 0.06, how would this affect the portfolio yield

Return Min Max Risk

Growth Stock Fund 0.18 0.2 0.4 0.1
Income Fund 0.125 0.2 0.5 0.07
Money Market Fund 0.075 0.3 0.01

Max Risk 0.06

Total funds Available $ 800,000.00

Model
Allocation
Growth $ 248,888.89 Annual Yield 11.77%
Income $ 160,000.00
Money Market $ 391,111.11
Total $ 800,000.00
Risk $ 40,000.00
Return $ 94,133.33
hree investment types for
sification purposes, they
ment in each portfolio

e as follows:

sk index of his portfolio to

xpected annual yield of this

allocation be affected?
 is no more than the
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he portfolio yield
Drexel Shoes has received a large order for leather loafers and suede boots. They employ three shoemakers, and the
number of hours needed to make all the leather loafers, the number of hours needed to make all the suede boots, the
number hours each shoemaker has available to work on the order, and the cost per hour are as follows:

Shoemaker 1 Shoemaker 2 Shoemaker 3

Hours Required to Complete All the Leather Loafers 50 42 30
Hours Required to Complete All the Suede Boots 60 48 35
Hours Available for the Order 40 30 35
Cost per Hour $36 $42 $55

For example, if Shoemaker 1 spent half of his available time on each type of shoe, he would supply 20 out of the 50, or
40%, of the hours needed for the leather loafers, and 20 out of 60, or 33.33%, of the hours needed for the suede boots.
Help Drexel Shoes minimize their total cost while meeting the demand.

a) If each of the shoemakers was available for overtime, would Drexel find it useful? If so, how much would they be willing
to pay for the overtime?
b) If Shoemaker 2 asked for a raise to $44 per hour, how would it affect the optimal solution? How would
the total cost change?
c) Shoemaker 1 receives additional training and can now make all the leather loafers in 46 hours and all the
suede boots in 56 hours. How will this affect the total cost?
d) If the order size for the leather loafers increases by 10%, how would this affect the total cost?

Hours spend by shoemaker

Decision Variables S1 S2
Hours spend on loafers X1 13.5416666667 0
Hours spend on suede X2 0 30
Total hours 13.5416666667 30

Constraints
Loafers 100 =
Boots 100 =
S1 hours 13.5416666667 <=
S2 hours 30 <=
S3 hours 35 <=
 emakers, and the
he suede boots, the
ows:

20 out of the 50, or

for the suede boots.

h would they be willing

would

d all the
Objective function
3672.5

maker
S3
21.875
13.125
35

100%
100%
40
30
35
Microsoft Excel 16.0 Sensitivity Report
Worksheet: [Part 2 Sensitivity Analysis.xlsx]6
Report Created: 7/9/2021 8:47:34 PM

Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$C$26 X1 S1 13.54166667 0 36 1.028571429 1.44
$D$26 X1 S2 0 0.892857143 42 1E+030 0.892857143
$E$26 X1 S3 21.875 0 55 1.224489796 1.714285714
$C$27 X2 S1 0 1 36 1E+030 1
$D$27 X2 S2 30 0 42 0.892857143 1E+030
$E$27 X2 S3 13.125 0 55 1.714285714 1.224489796

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$H$13 Loafers 100 18 100 52.91666667 27.08333333
$H$14 Boots 100 21 100 45.35714286 23.21428571
$H$15 S1 hours 13.54166667 0 40 1E+030 26.45833333
$H$16 S2 hours 30 -1.75 30 11.14285714 21.77142857
$H$17 S3 hours 35 -5 35 8.125 15.875