• Author / Uploaded
• Darwyn Mendoza

Citation preview

Annabelle Invests in the Market A Case Study Presented to the Decision Sciences and Innovation Department The Ramon V. Del Rosario – College of Business De La Salle University In partial fulfillment Of the requirements of the course MANSCIE Section K32 SUBMITTED TO: Dr. Emilina R. Sarreal SUBMITTED BY: Chua, Hazel Ann Y. R. Gonzales, Raeanne Therese Q. Mendoza, Darwyn Albert T. Phillipneris, Anna Marie S. Ramirez, Diana Marie M. February 27, 2014

I.

Brief Background of the Case Annabelle Sizemore has paid some treasury bonds and a life insurance policy that her parents had accumulated over the years for her. At the same time, Annabelle has saved some money in certificates of deposit and savings bonds since she graduated from college 10 years ago. As a result, she can invest $120,000. Then she felt that she should invest the entire amount there, given the recent rise in the stock market. Annabelle then decides on which is the best stock market that she should invest in. She then chose an index fund from Shield Securities and an Internet stock fund from Madison Funds, Inc. She has also decided that the proportion of the dollar amount that she invests in the index fund relative to the Internet fund should be at least one-third but she should not invest more than twice the amount in the Internet fund that she invests in the index fund. In short, she wants to balance her risk (of losing money) to some degree.

II.

Define the Problem 1. How much money should Annabelle invest in each fund? 2. What will be the effect in eliminating the ⅓ constraint? 3. What will be the effect in eliminating the 2:1 constraint? 4. What can be said about her ROI strategy given that she invests $1 more? $2 more? $3 more?

III.

Acquire Input Data

Profit (Z)

X1

X2

Symbol

Right Hand Side

175

208

=

$120,000

>

0.33


0.33 3) x2/x1 < 2 x1,x2 > 0

V.

Develop the Solution 5.1. Solve for the Constraints

5.2 Graph the Solution

5.3 Corner Point Solution 175x1 + 208(2x1) = 120,000 x2/x1 < 2 x2 = 2x1 175x1 + 208(2x1) = 120,000 591x1 = 120000 x1 = 203.05 175x1 + 208x2 = 120,000 175 (203.05) + 208x2 = 120,000 208x2 = 84,466.25 x2 = 406.09 (x1, x2) (203, 406) Max Z = 29.75x1 + 58.24x2 29.75(203.05) + 58.24(406.09) =29,691.42

5.1 Solve for the Constraints

5.2 Graph the Solution

5.3 Corner Point Solution 175x1+ 208x2= $120,000 x1/x2 > 0.33 x1 = 0.33 175(0.33) + 208x2 = 120000 265.75x2 = 120000 x2 = 451.55 Max Z = 29.75x1 + 58.24x2 29.75(0.33) + 58.24(451.55) =26,308.09

VI. VII.

VIII.

Analyze the Results According to the data, Recommended Solution Annabelle could add more dollars to her investments since the rate of return is relatively stable. Her profit will get higher by $0.25 every time she adds $1 to her investment. Conclusion The increasing the amount available to invest (e.g. $120,000 to $120,001) will increase the profit from Max Z = $29,691.37 to Max Z = $29,691.62 or approximately $0.25. Each $1 increase in investment is equivalent to a $0.25 expected return in overall profit. Also, the marginal value of an extra $1 that Annabelle will invest is $0.25. We can also conclude that Annabelle’s ROI is fairly good, because if the markets are stable, every $1 will yield a $0.25 return in profit. This means that her rate of return will get higher every time she adds a dollar to her investment. This strategy is better compared to a profit deficit.