A financial manager is managing a cash fund. His investment alternatives available are various…
A financial manager is managing a cash fund. His investment alternatives available are various certificates of deposit, also known as CDs, as listed in the following table:
However, he also must ensure that sufficient funds are available to pay company expenditures over the next six months. The following table lists the net expenditures (in thousands of dollars) that the manager is obligated to cover (cash amounts in parenthesis indicate a net inflow of cash rather than outflow).
The cash on hand to invest at the start of month 1 is $200,000 and the minimum cash required to be available at the end of month 6 is $100,000. Develop and solve a linear program that will recommend how to invest to maximize the amount of interest income accrued over the next six months while satisfying all financial commitments.
(Hint: Investment time starts at the beginning of the month and returns at the end of the month. For example, money invested in a 1-month CD in month 1 will be invested at the beginning of month 1 and returned with interest at the end of month 1. Likewise, money invested in a 3-month CD at the start of month 1 will be returned with interest at the end of month 3.)