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Question
A company is considering investing a total amount of $2.50 million in four bonds. The expected annual return, the worst-case annual return on each bond, and the "duration" of each bond are given in the table below.| Bond 1 | Bond 2 | Bond 3 | Bond 4 | |
| Expected | 16% | 11% | 14% | 19% |
| Worst case | 7% | 9% | 11% | 10% |
| Duration | 4 | 5 | 8 | 10 |
The worst-case return of the bond portfolio must be at least 90%.
The average duration of the portfolio must be at most 7
Because of diversification requirements, at most 35% of the total amount invested in a single bond.
Determine how the company can maximize the expected return on its investment.
Answer
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