LINEAR PROGRAMMING FORMULATION PROBLEMS SET 3

CURRENCY ARBITRAGE MODEL.

Suppose that a company has 5 million US $ that can be exchanged for various international
currencies. Currency dealers have set the following restrictions on the amount of any single
transaction : 5 million US$, 3 million euros, 3.5 million pounds, 100 million yen and 2.8
Million Kuwaiti Dinars.The typical exchange rates existing at present are given below.

$ € ₤ ¥ KD

$ 1 .769 .625 105 .342

€ 1 .813 137 .445

₤ 1 169 .543

¥ 1 .0032

KD 1

Is it possible to increase the dollar holdings by circulating currencies in the market?

INVESTMENT DECISION MODEL

An investment counselor is attempting to determine the best investment mix for one of his
clients. Some information about the possible options are given in the table below.

SHARES UNDER CONSIDERATION

A B C D E F
Current price per share 80 100 160 120 150 200

Projected annual growth rate 8% 7% 10% 12% 9% 15%

Projected annual dividend per share Rs 4 4.5 7.5 5.5 5.75 0

Projected risk in return 5% 3% 10% 20% 6% 8%

Client wants to invest 50 lakhs of Rs. with the following conditions.
i) investment in F not to be more than Rs5L. ii) Maximum investment in A and B put together
not to exceed Rs10 Lakhs. iii) Total weighted risk to be less than 10%

iv) At least 100 shares of each should be held. v) Investment in A and B must be at least 10% of
total investment.
v) Dividends for the year should be at least Rs 30000.

If the objective is to maximize the rupee rate of return for one year, formulate an LPP to help the
Counselor.

MULTI PERIOD PRODUCTION-INVENTORY MODEL.

Acme manufacturing company has contracted to deliver home windows over the next 6 months.
The demands for each month are 100,250,190,140,220 and110 units respectively. Production cost
per window varies from month to month depending on the cost of labour,material and utilities.
Acme estimates the same to be Rs 500,450,550,480,520 and 500 over the next six months. To
take advantage of these fluctuations, Acme may elect to produce more in a month than the
demand and hold the excess units for delivery in the later months.This however will result in an
additional storage cost of Rs 80 per unit per month. Formulate an LPP to get the optimum
production schedule.

MULTI PERIOD PRODUCTION SMOOTHING MODEL.

A Company plans to manufacture a product for the next 4 months, the demands for the same
being 520,720,520 and 620 respectively. The company has 10 permanent workers, but can
meet fluctuating requirements by hiring and firing temporary workers. The costs of hiring
and firing are Rs.200 and 400 per worker respectively. A permanent worker produces 12 units
per month, while a temporary worker can produce only 10 units. The cost of holding extra
stocks is Rs 50 per unit per month. Develop an optimal hiring/firing policy for the company
over the next 4 months.
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