Susan Wong’s Personal Budgeting Model
Susan Wong wants to develop a linear programming model for her budget. The objective is to maximize her short-term investments during the year so she can take the money and reinvest at the end of the year in a longer-term investment program.
Susan has $3000 in her bank account at the beginning of this year. Her after-taxes-and-benefits salary is $29400 per year which she receives in 12 equal monthly paychecks ($2450/month) at the end of each month. Susan has computed her expected monthly liabilities for this year, as shown in the following table.
|
Month |
Bills ($) |
Month |
Bills ($) |
|
January |
2860 |
July |
3050 |
|
February |
2750 |
August |
2300 |
|
March |
2550 |
September |
1975 |
|
April |
2120 |
October |
1670 |
|
May |
1205 |
November |
2710 |
|
June |
1600 |
December |
2980 |
Susan has decided that she will invest any money she doesn’t use to meet her liability each month in either 1-month, 3-month or 7-month short-term investment vehicles. The yield on a 1-month investment is 6% per year nominal (0.5%/month). The yield on a 3-month investment is 8% per year nominal (equivalent to 2% for 3 months). On a 7-month investment, the yield is 12% per year nominal.
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