Janet Lopez is establishing an investment portfolio that will include stock and bond funds. She has $720,000 to invest, and she does not want the portfolio to include more than 65% stocks.
The average annual return for the stock fund she plans to invest in is 18%, whereas the average annual return for the bond fund is 6%. She further estimates that the most she could lose in the next year in the stock fund is 22%, whereas the most she could lose in the bond fund is 5%. To reduce her risk, she wants to limit her potential maximum losses to $100,000.
Formulate a linear programming model for this problem by defining the decision variables, objective function, and all the constraints. Do NOT solve the problem after formulating.