Question

Briefly describe a recent decision you made that could be viewed from an optimization perspective. In a few words, what were the “decision variables”? What was the objective? What were the constraints? Did you have more than one objective?

Answer 1

Recently, I have invested in six different types of bond. The investment is made after assessing the properties of the bonds - return, years to maturity and riskiness.

There were six decision variables and the decision variables were the amount of money to be invested in each of the six bonds.

The objective was to maximize the total annual return on investment

The constraints were

i) at most one-fourth of the total amount can be invested on a single bond

ii) at least half of the amount should be invested on bonds having year to maturity more than 12 years

iii) at most one third of the amount should be invested on the high risk bond and the rest amount on low risk and very low risk bonds

No, I had only one objective of maximizing the annual return