9781118041581

A portfolio manager has $20 million to invest in a fund consisting of the following

bonds:

Maturity Yield

Bond Category Quality Rating (Years) (Percent)

Treasury bills 5 .4 4.0

Treasury bonds 5 4.0 6.0

Corporate bonds 3.5 3.2 4.4

Municipal bonds 3 2.0 5.6

Junk bonds 1 2.5 8.0

He has listed the bonds in descending order of quality rating (treasury securities

carry the lowest risk, junk bonds are most risky). The second column lists average

maturity (in years) for each category. The final column shows the expected return or

yield (in percent per year, after tax) for each bond. Junk bonds have the greatest

expected return, followed by treasury bonds.

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CHAPTER 17

Linear Programming

Management is the art of doing the best one can within constraints and

occasionally getting around them.

ANONYMOUS

An Investment

Problem

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