HOO LYNN BS14110346

SM30703
OPTMIZATION
SESSION 2015/2016
SEMESTER 2

ASSIGNMENT:
INVESTMENT MODEL

Prepared for:
DR. NORAINI ABDULLAH

Prepared by:
NAME MATRIX NO.
HOO LYNN BS14110346

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HOO LYNN BS14110346

Assignment 1A : Investment Model using Dynamic Programming

Sarah want to invest RM6000 now and RM3000 at the start of years 2
to 4. The interest rate compounded annually by First bank is 6%, and
the bonuses over the next 4 years are 1.4%, 1.3%. 2.4%, and 2.6%
respectively. While the annual interest rate compunded by the Second
bank is 0.6% lower than that of the first bank, but its bonuses is 4%
higher.
Objective:To maximize the accumulated capital at the end of 4 years.

P1 = RM 6000, P2 = P3 = RM 3000
α1 = (1 + 0.06 ) = 1.06
α2 = (1 + 0.054 ) = 1.054
q11 = 0.014, q21 = 0.013, q31 = 0.024, q41 = 0.026
q12 = 0.018, q22 = 0.017, q32 = 0.028, q42 = 0.030

Stage 4
{ }
Where
( ) ( ) )
( – – ) ( )

Optimum solution
State ( )

Stage 3
{ ( )}
Where
( ) ( ) )
( ) ( )

( )
( )

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HOO LYNN BS14110346

( ) { (
)}
{ }

Optimum solution
State ( )

Stage 2
{ ( )}
Where
( ) ( ) )
( ) ( )

( )
( )

( ) { (
)}
{ }

Optimum solution
State ( )

Stage 1
{ ( )}
Where
( ) ( ) )
( ) ( )

( )
( )

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HOO LYNN BS14110346

( ) { (
)}
{ }

Optimum solution
State ( )
=6000

Working Backwards:

Therefore,

( ) ( )
( ) ( )
( ) ( )

Year Optimum Decision Accumulation

Solution
1 Invest RM6000 in 1st ( )
Bank ( )
= RM 7574.4
2 Invest RM3084 in 1st ( )
Bank ( )
=RM 3673.04
3 Invest RM3078 in 1st ( )
Bank ( )
=RM 3458.39
4 Invest RM3144 in 1st ( )
Bank ( )
=RM 3414.38
Total Accumulation
( ) ( )