Maximize Profit: Investing $33K in Mutual Funds

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SUMMARY

The discussion centers on optimizing an investment of $33,000 in two mutual funds: the Franklin Natural Resources fund with an 8% yield and the Oppenheimer Developing Markets A fund with a 10% yield. The investment broker must allocate at least $8,000 to Franklin and no more than $13,000 to Oppenheimer. The optimal investment strategy is to allocate $20,000 to Franklin and $13,000 to Oppenheimer, resulting in a maximum annual return of $2,900. The confusion arises from whether to multiply the return by 5 years, which is unnecessary for the annual yield calculation.

PREREQUISITES
  • Understanding of linear programming (LP) formulation
  • Familiarity with mutual fund investment strategies
  • Knowledge of yield calculations and investment returns
  • Basic grasp of constraints in optimization problems
NEXT STEPS
  • Research linear programming techniques for investment optimization
  • Learn about mutual fund performance metrics and yield calculations
  • Explore software tools for financial modeling, such as Excel Solver
  • Investigate common pitfalls in investment return calculations over multiple years
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Investment brokers, financial analysts, and anyone involved in optimizing mutual fund investments will benefit from this discussion.

mtingt
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An investment broker wants to invest up to $ 33000 She can invest in two mutual funds based on their yearly average return for the 5 years ending December 31, 2009: the Franklin Natural Resources fund yielding 8% and the Oppenheimer Developing Markets A fund yielding 10% She wants to invest at least $8000 in the Franklin Natural Resources fund and no more than 13000 in the Oppenheimer Developing Markets A fund. How much should she invest in each type of fund to maximize her return?

I got the two maximizing points 20,000 and 13,000

and got $2900 for max return, and it said it was wrong, why was it wrong?
 
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mtingt said:
An investment broker wants to invest up to $ 33000 She can invest in two mutual funds based on their yearly average return for the 5 years ending December 31, 2009: the Franklin Natural Resources fund yielding 8% and the Oppenheimer Developing Markets A fund yielding 10% She wants to invest at least $8000 in the Franklin Natural Resources fund and no more than 13000 in the Oppenheimer Developing Markets A fund. How much should she invest in each type of fund to maximize her return?

I got the two maximizing points 20,000 and 13,000

and got $2900 for max return, and it said it was wrong, why was it wrong?

It is not wrong.

However, your description of your solution is a bit wrong: you do not have two maximizing points, you just have the single point (F,O) = (20,13) (in $000s).

RGV
 
ok thanks, I put that in online and it said my Max return was wrong, is it because it said 5 years?
even if it was 5 years, I multiplied the max return by 5 and it was still wrong?

is it just me or something is wrong with the system?
 
The LP formulation is: let F = $000s invested in Franklin and O = $000s invested in Oppehheimer. then: the annual yield, in $000s is 80*F + 100*O, so:
max Z = 80*F + 100*O
st
F >= 8
O <= 13
O+F <= 33
O,F >= 0.

The optimal solution is F = 20, O = 13, giving Z = 2900. Then the only issue is whether or not to multiply the 2900 by 5. If some system is not accepting this solution that system is wrong or has bugs.

RGV
 

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