An aspiring investor, alex, has $8000 to invest and is considering between two options:
Mutual fund(M): expected annual returrn of 10%, considered moderately risky.
High-Yield Savings Account (H): Expected annual return of 5%, considered safe.
Alex has a strict risk tolerance constraint limiting investments in the Mutual Fund to a maximum of 40% of his fund. Along with his tolerance and budget, he's got two more rules to play by:
Income generation: he prioritizes income generation and require a minimum annual return of at least $120. The Mutual Fund offers a 3% annual dividend, while the Savings Account offers a 2% annual income.
Liquidity Needs: He wants to ensure cash availability at at least 2000 in saving account.
The Mutual Fund incurs a 1% annual management fee.
You will guide Alex to a winning strategy that satisfies all these constraints while maximizing his returns.
a. Formulate this Linear Programming?
b. Solve this LP and give suggestion to Alex?
c. If Alex levels up her demand on dividend payout from $120 to $150, how would this change the optimal allocation of his $8000 investment between 2 investment options, consequently, impact his maximum annual return?
