Case Problem 3: Annabelle Invests in the Market

Let

P be Profit for annual return of investment

x be the number of shares in index fund

y be the number of shares internet fund

Maximize: P=( .17 )( 175 ) x+ ( .28 ) (208 ) y

P=29.75 x +58.24 y

Subject to:

175 x+208 y ≤120,000 (Price per share of the index fund and internet fund to

the total amount of $120,000.)

1
x≥ y (Investing index fund at least 1/3 as compared to the internet fund.)
3

y≤2 x (Investing not more than twice the amount in the internet fund as

compared to index fund.)

x , y ≥0 (Non-negativity constraints)
Constraints:
175 x+208 y ≤120,000
175 x+208 y ≤120,000
175 x+208 y=120,000
175 x+208 y=120,000
Let y be 0
Let x be 0
175 x+208 ( 0 )=120,000
175 ( 0 ) +208 y=120,000
175 x 120,000
208 y 120,000 =
= 175 175
208 208
x=685.71
y=576.92

x-intercept: (685.71, 0)

y-intercept: (0, 576.92)

1
x− y ≥0
3

Solve for x

1
x− y=0
3

1
x= y
3

1y
The graph is a line through the origin (0, 0) has slope of . For every 3 rise there is
3

1 run.

2x−y≥0

Solve for y
2 x − y=0
2x=y
y=2 x
 2x
The graph is a line through the origin (0, 0) has slope of . For every 2 rise there is
1
1 run

1000

900 175x + 208y ≤ 120,000

800 x≥1/3y

700
y≤2x
600

500

400

300

200

100

0
- 100 200 300 400 500 600 700 800

Extreme Point A:

175 x+208 y ≤120,000 175 x+208 ( 450.56 )=120000

1
x− y ≥0∨x ≥ 1/3 y
3 175 x+ 93716.48=120000

175 x+208 y=120,000

175 x=120000−93716.48
−175 [ x−.3333 y=0 ] −175
175 x=26283.50
175 x+208 y=120000 175 175
−175 x +58.33 y=0
x=150.18
266.33 y=120000
266.33 266.33
y=450.56
Extreme Point B:
175(203.05)+208 y=120,000
175 x+208 y ≤120,000
2 x − y ≥ 0∨ y ≤ 2 x 35533.75+208 y=120,000

175 x+208 y=120,000 208 y=120,000−35533.75

208 [ 2 x− y =0 ] 208
208 y =84466.25
175 x+208 y=120,000 208 208
416 x−208 y =0
591 x=120000 y=406.09
591 x=120000
591591
x=203.05

Objective Function: P=29.75 x +58.24 y

Extreme Points Values of the objective function

(150.18, 450.56) 29.75(150.18)+58.24(450.56)= $30708.89

(203.05, 406.09) 29.75(203.05)+58.24(406.09)= $ 29691.41

Annabelle had maximized her profit if she has invested 150.18 shares of index

fund and 450.56 shares of internet fund in order to get the return on investment of

$30,708.89

If she decides to eliminate the restriction that the proportion of the amount she

invests in the index fund to the amount that she invests in the internet fund must be
one-third the effect will be having a profit of $ 29691.41since the value of x is 203.05

shares and the value of y is 406.09 shares.

If she eliminates the restriction that the proportion of the money she invests in the

internet fund relative to the stock fund nor exceed a ratio of 2 to 1, her solution will only

have one optimal solution which is 150.18 shares of x and 450.56 shares of y that will

produce a profit of $30708.89

If she increases $1 to her investment, she will have profit from $30708.89 to

$30709.14 which means she has $0.25 in every $1 increase in her return of investment.

Each $1 increase in investment is equal to $0.25 assumed return in overall profit.

Therefore, we can say that Annabelle Sizemore’s profit from return of investment

is well, because her strategy will be complemented if the market were stable so she will

have $0.25 return in every $1 investment. This means that she will get higher return of

investment in every increase of amount of she will invest. Her strategy will gain more

profit.