Suppose you have $800K to invest in a mix of stock and bonds and you do not like your basket to contain more than 60% stocks. Historically you know the average annual return for the stock and bond are 16% and 5% respectively. Moreover, based on your excellent experience in stock market, you expect yourself not to lose more than 21% in stock and not to lose more than 3% in bond next year. If you want to limit all you potential loss to one hundred grand:
a) Formulate a linear programming model to abstract your decision problem.
b) Solve the problem using graphical analysis.