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It Is Estimated That (1) Share A Will Earn A Dividend of 12% Per Annum and Share B 4% Per Annum

The pension fund manager wants to invest in shares A and B to earn a dividend income of Rs. 600 and capital growth of Rs. 1000. This problem is formulated as a linear programming problem to minimize total investment subject to the income and growth constraints. The dual problem is to maximize income and growth subject to budget constraints. Using the dual simplex method, the optimal solution is found to be an investment of Rs. 50000/11 in share A and Rs. 15000/11 in share B to achieve the desired outcomes.

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Affu Shaik
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38 views10 pages

It Is Estimated That (1) Share A Will Earn A Dividend of 12% Per Annum and Share B 4% Per Annum

The pension fund manager wants to invest in shares A and B to earn a dividend income of Rs. 600 and capital growth of Rs. 1000. This problem is formulated as a linear programming problem to minimize total investment subject to the income and growth constraints. The dual problem is to maximize income and growth subject to budget constraints. Using the dual simplex method, the optimal solution is found to be an investment of Rs. 50000/11 in share A and Rs. 15000/11 in share B to achieve the desired outcomes.

Uploaded by

Affu Shaik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Problem

• A pension fund manager is considering investing in


two shares A and B. It is estimated that (1) share A
will earn a dividend of 12% per annum and share B 4%
per annum. (2) Growth in the market value in one
year of share A will be 10 paise per Re 1 invested and
in B 40 paise per Re 1 invested. He requires to invest
the minimum total sum which will give dividend
income of at least Rs 600 per annum and growth in
one year of at least Rs 1000 on the initial investment.
You are required to (1) state the mathematical
formulation of the problem. (2) compute the
minimum sum to be invested to meet the manager’s
objective by using dual simplex method.
Shares Income
•A B
•Dividend 12% 4% 600
•Growth 10 paise/1Rupee 40 paise/1Rupee 1000
•Let x1 be the amount to be invested in share A
•Let x2 be the amount to be invested in share B
•Z= Total investment in both shares A and B
Min Z= x1 + x2
Subjected to constraints
0.12x1 +0.04x2 ≥ 600
0.1x1 + 0.4x2 ≥ 1000

x1 ≥ 0 , x2 ≥ 0
• The above problem is in the standard form to
write the dual. ( Minimization case all ≥ type
constraints and all are positive variables)
• Dual
• Max W= 600y1+1000y2

• 0.12Y1+0.1y2 ≤ 1
• 0.04 Y1+0.4y2 ≤ 1
• y1 ≥ 0, y2 ≥ 0
• RHS values of all constraints are positive

• Convert inequality constraints in to equations


by adding suitable variables.

• Max W= 600y1+1000y2

• 0.12Y1+0.1y2 +s1=1
• 0.04 Y1+0.4y2 +s2=1
• y1 ≥ 0, y2 ≥ 0 , s1 ≥ 0, s2 ≥ 0
• Write the problem in the standard form.

Max W= 600y1+1000y2+0s1 + 0s2

0.12Y1+0.1y2 + s1 +0s2= 1

0.04 Y1+0.4y2 +0s1 +s2 = 1

y1 ≥ 0 , y2 ≥ 0 , s1 ≥ 0 , s2 ≥ 0
• Now find the IBFS by putting (n-m) number of
variables zero.

• 4-2 =2 variables y1 and y2 putting zero in the


constraints s1 = 1, s2 = 1

• Now draw the simplex table


Cj
600 1000 0 0

CB Basic xB Ratio
Variables
  or y1 y2 s1 s2
Solution
  1/1/10
0 3/25 1/10 1 0 =10
s1 1

  0 s2 1 1/25 2/5 0 1 1/2/5=


5/2
  Zj
0 0 0 0

Cj - Zj 0
600 1000 0
Cj
600 1000 0 0

CB Basic xB Ratio
Variables
  or y1 y2 s1 s2
Solution
 
0 3/4 11/100 0 1 -1/4 75/11
s1

  1000 y2 5/2 1/10 1 0 5/2 25

  Zj 100 1000 0 2500

Cj - Zj -2500
500 0 0
Cj
600 1000 0 0

CB Basic xB Ratio
Variables
  or y1 y2 s1 s2
Solution
 
600 75/11 1 0 100/11 -25/11
y1

 1000 y2 20/11 0 1 -10/11 30/11

  Zj 600 1000 50000/11 15000/11

Cj - Zj -50000/11 -15000/11
0 0
• In maximization case all Cj –Zj values are negative
or zero. Hence the problem has optimal solution.

• Optimum values of y1 = 75/11 , y2 =20/11

• w= 600x75/11 + 1000x20/11=65000/11
• From the optimal table
• x1 = 50000/11 , x2 =15000/11

• w= 50000/11 + 15000/11= 65000/11

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