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3. a municipal construction project has funding requirements over the next...

# Question: a municipal construction project has funding requirements over the next...

###### Question details

A municipal construction project has funding requirements over the next four years of $2 million,$4 million, $8 million, and$5 million, respectively. Assume that all of the money for a given year is required at the beginning of the year. The city intends to sell exactly enough long-term bonds to cover the project funding requirements, and all of these bonds, regardless of when they are sold, will be paid off on the same date in a distant future year. The long-term bond market interest rates (that, the costs of selling bonds) for the next four years are projected to be 7%, 6%, 6.5%, and 7.5%, respectively. Bond interest paid will commence one year after the project is completed, and will continue for twenty years, after which the bonds will be paid off. During the same period, the short-term interest rates on time deposits (that is, what the city can earn on deposits) are projected to be 6%, 5.5%, and 4.5%, respectively. (The city won’t invest money in short-term deposits during the fourth year.) Formulate (do not solve) a linear programming problem to determine the city’s optimal strategy for selling bonds and depositing funds in time accounts in order to complete the construction project.