Overview
The Scenario: You are looking to invest $20,000 and have 6 accounts to choose from.They are detailed here:
| Fund 1 | Fund 2 | Fund 3 | Fund 4 | Fund 5 | Fund 6 | |
| Return [%] | 4 | 3 | 5 | 3.5 | 6 | 5.5 |
| Safety (#/10) | 4 | 7 | 2 | 6 | 1 | 8 |
You know that you don’t want to invest any more than $5,000 into any one scheme, and that you have to invest at least $1,000 into Fund 2.In order to balance out some risk/increase the safety rating, however much you invest into Fund 6, you have to invest at least half that much into Fund 5.You are looking to maximize your return, while also maximizing your safety rating.
- Solve the problem using preemptive optimization where you first find a bound on the Safety (being willing to average an overall safety rating that is at most 25% less than the optimal value) and then solve for your best Return.Save this on a sheet named Safety First
- Solve the problem using preemptive optimization where you first find a bound on the Return (being willing to average an overall return that is at most 40% les than optimal) and then solve for your Safest investments.Save this on a sheet named Return First
- Solve the problem using the weighted sum method where Return is twice as important as Safety.Save this on a sheet named WeightedSum
- In a textbox on WeightedSum, answer the following question: If we reversed the weights, how would the solution be likely to change, and why?