The Heinlein and Krampf Brokerage firm has just been instructedby one of its clients to invest $250,000 of her money obtainedrecently through the sale of land holdings in Ohio. The client hasa good deal of trust in the investment house, but she also has herown ideas about the distribution of the funds being invested. Inparticular, she requests that the firm select what- ever stocks andbonds they believe are well rated but within the followingguidelines:
● Municipal bonds should constitute at least 20% of theinvestment.
● At least 40% of the funds should be placed in a combination ofelectronic firms, aerospace firms, and drug manufacturers.
● No more than 50% of the amount invested in municipal bondsshould be placed in a high-risk, high-yield nursing home stock.
Subject to these restraints, the client’s goal is to maximizeprojected return on investments. The analysts at Heinlein andKrampf, aware of these guidelines, prepare a list of high-qualitystocks and bonds and their corresponding rates of return:
| Investment | Projected Rate of Return (%) |
| Los Angeles municipal bonds | 5.3 |
| Thompson Electronics | 6.8 |
| United Aerospace Corp. | 4.9 |
| Palmer Drugs | 8.4 |
| Happy Days Nursing Home | 11.8 |
(a) Formulate this portfolio selection problem using LP.
(b) Solve this problem.
