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Many Wall Street firms use LP models to select a desirable bond portfolio. The following is...

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Advance Math

Many Wall Street firms use LP models to select a
desirable bond portfolio. The following is a simplified
version of such a model. Solodrex is considering
investing in four bonds; $1 million is available for
investment. The expected annual return, the worst-case
annual return on each bond, and the duration of each
bond are given in the file P04_56.xlsx. (The duration
of a bond is a measure of the bond’s sensitivity
to interest rates.) Solodrex wants to maximize
the expected return from its bond investments,
subject to three constraints:
â–  The worst-case return of the bond portfolio must
be at least 7%.
â–  The average duration of the portfolio must be
at most 6.5. For example, a portfolio that invests
$600,000 in bond 1 and $400,000 in bond
4 has an average duration of [600,000(3) 1
400,000(9)]Y1,000,000 5 5.4.
â–  Because of diversification requirements, at most
40% of the total amount invested can be invested in
a single bond.
Determine how Solodrex can maximize the expected
return on its investment.

Bond data
Returns anddurations
Bond 1Bond 2Bond 3Bond 4
Expected14%13%8%12%
Worst case9%6%8%10%
Duration9548

thanks a lot !!!

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