Question

) Supply chain finance is a new and important field. Lets say you just got hired as a SCM analyst tasked with a finance initiative. You have to select a portfolio package from a set of alternative investments. Your goals are to:

Maximization of the expected return or minimization of the risk

Not exceeding the available capital

Managing the company’s (risk) policy

Consider the duration of investments’ economic life, potential growth rate, danger, liquidity

You have been given the following expected return information:

Investment	Expected annual return rate (%)
Share A-Manufacturing sector	15.4
Share B-Manufacturing sector	19.2
Share C-Food and beverage sector	18.7
Share D-Food and beverage sector	13.5
Mutual fund E	17.8
Mutual fund Z	16.3

You also have the following requirements:

Total amount of capital= $90,000

Amount in shares of a sector no larger than 50% of total available

Amount in shares with the larger return of a sector less or equal to 80% of sector’s total amount

Amount in manufacturing company Β less or equal to 10% of the whole share amount

Amount in mutual funds less or equal to 25% of the amount in manufacturing shares

Therefore, you must:

Formulate the problem, complete with the objective function and appropriate constraints and be sure to clearly label your decision variables.

Solve this problem in excel with solver

Write a few sentences describing what the results say, in plain language.

Answer 1

Let investment in Share A be x, B be y, C be z, D be a, E be b and Z be c
x,y,z,a,b,c>=0
x+y+z+a+b+c<=90000
x+y<=90000*50%
z+a<=90000*50%
y<=80%*(x+y)
z<=80%*(z+a)
y<=10%*(x+y+z+a)
b+c<=25%*(x+y)
Maximize x*15.4%+y*19.2%+z*18.7%+a*13.5%+b*17.8%+c*16.3%

One should invest 27900 in Share A, 8100 in Share B, 36000 in Share C, 9000 in Share D and 9000 in Mutual Fund E. No amount should be invested in Mutual Fund Z.
This uses the entire available capital alongwith maximizing return and satisfying all the constraints