Our Blog - Subject 3

(3) Calculation of the optimal investment

Suppose we have to invest 100,000 euros and we decided to do it in 4 different products (we will call them bonds A, B, C and D).

 

There are several assumptions that condition our investment:

• A maximum of 25,000 euros can be invested in bonds C and 20,000 euros in bonds D.

• The risk for bonds A suggests that the investment does not exceed 15% of total.

• There is a dependency between A (bonds) and B (bonds) such that B investment must be at least three times A investment.

• Furthermore, it is requireed that investment in C and D (bonds) is at least half of the investment in A and B (bonds).

The estimated annual returns are: bonds A (10%), bonds B (5%), bonds C (4.5%) and bonds D (5.5%).

 

What is the optimal investment for obtaining the maximum benefits?

 

 

We raise the problem and find the solution ...

 

 

 

... and now we solve it automatically ...

 

We have used the possibilities that KPress-Calc gives us to implement the Simplex method. KPress-Calc is a fully free tool that allows us to make any calculations, either from an administrative, financial or scientific point of view, but mostly it gives users the ability to create their own programs or processes, not depending on third parties.

 

You can download KPress-Calc and try the Simplex method for any linear programming problem. At the top of this page you can have access to a video tutorial in which you can see the result of the proposed problem by using KPress-Calc and, in any case, below we show in pictures the process to obtain the solution:

 

• 1.- We run KPress-Calc from the desktop and press on the icon on the top right, as is shown by the circle of Figure 1. This option opens the KeyPad of KPress-Calc, where we see the different directories and subdirectories processes we have defined (in the picture we see the configuration that comes standard with KPress-Calc).

• 2.- We press on Mathematics option and another set of options is opened; we press on Algebra and later on Simplex Method. Of course, this organization is fully configurable by the user, both in terms of its appearance and its contents, for example, we could have access to the Simplex Method in the main directory.

• 3.- The module requests the number of variables, in our case is 4, corresponding to A, B, C and D, and the number of conditions, which in our case is 6, and presents a grid for you to fill in the corresponding coefficients of the function to maximize and conditions. Then we press on the bottom right icon and the Simplex Method will be performed for the entered data and ...

• 4.- Solution is shown (Figure 4), which for our example is:

 

Join in and test the different processes that come with KPress-Calc, for example, within the Economics area are implemented processes that allow us to obtain many caculations immediately: DDB, IRR, MIRR, VA, VNA, VF, NPer, PV , NPV, SLN, SYD, ... you can also create your own processes and, if you like, share them with the community of users in KPress-Calc.

 

 

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