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Sensitivity Analysis Example

Sensitivity Analysis Example. Jones Investment. Charles’ Evaluation. Jones Investment. Portfolio goals Expected annual return of at least 7.5%. At least 50% invested in “A-Rated” investments. At least 40% invested in immediately liquid investments.

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Sensitivity Analysis Example

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  1. Sensitivity Analysis Example

  2. Jones Investment • Charles’ Evaluation

  3. Jones Investment • Portfoliogoals • Expected annual return of at least 7.5%. • At least 50% invested in “A-Rated” investments. • At least 40% invested in immediately liquid investments. • No more than $30,000 in savings accounts and certificates of deposit. • Problem summary • Determine the amount to be placed in each investment. • Minimize total overall risk. • Invest all $100,000. • Meet the investor goals (diversify).

  4. Jones Investment – Solution Risk function • Variables Xi = the amount allotted to each investment; • The Mathematical Model Minimize 25X3+30X4+20X5+15X6+65X7 + 40X8 ST: X1+ X2+ X3+ X4+ X5+ X6 + X7+ X8 = 100,000 .04X1+.052X2+.071X3+.10X4+.082X5+.056X6+.27X7+.125X8³ 7500 X1+ X2 + X5 + X7³ 50,000 X1+ X3+ X4 + X7 ³ 40,000 X1+ X2 £ 30,000 All the variables are non-negative Total investment Return Savings/ Certificate A - Rate Liquid

  5. Jones Investment - Spreadsheet

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