MBAD/F 617
Dr. Leon
Fall 2012
FINAL EXAM STUDY GUIDE
1) Nonlinear Programming Theory
a) Overview of the four tiers of problem difficulty
b) Identify sources of nonlinearity in an existing model
c) Definition and identification of global versus local optimal solutions
d) Use of RSPE’s Transformation feature for nonsmooth models
e) Evolutionary Algorithms:
i) Modify an existing nonlinear model to use Solver’s evolutionary engine
ii) Explain what the evolutionary algorithm does and its potential value
2) Integer Programming Theory:
a) Types of IP models
b) Optimal solution value of a LP Relaxation model compared to the optimal
solution value of the corresponding integer programming model
c) Definition of a solution identified within a certain tolerance range
3) Applications
a) Cash management principles
i) Modify an existing cash flow model to incorporate a specified cash
management option
ii) Rank the attractiveness of different sources of cash and short term financing
options
b) Capital Budgeting models (Chpt. 6 homework)
i) Create a spreadsheet model to select a limited number of activities subject to
(1) Resource constraints
(2) Dependent variable constraints
c) Municipal Bond Underwriting
i) Objectives and responsibilities of the underwriter versus the issuer for the
security
ii) Manual calculation of the net interest cost and the premium
iii) Modify and use an existing model to program Solver to minimize net interest
costs and meet underwriter’s specified profit margin expectations.
d) Socially Responsible Investing:
i) Understand the selection criterion associated with the management of socially
responsible funds
ii) Data Envelopment Analysis models
(1) Be able to identify appropriate input and output variables along with the
necessary characteristics
(2) Program a Data Envelopment Analysis model and a VBA macro to
determine the efficiency of all of the DMUs in the model
(3) Interpret the solution: which options are efficient? If an option is
inefficient, what options can it be benchmarked to? Based on identified
benchmarks, what inputs/outputs need to change?
e) Portfolio Structuring:
i) Calculate the variance-covariance matrix, portfolio variance and return
ii) Determine the optimal portfolio allocation for different criteria
iii) Determine the MVP, CETP and EWP portfolios
iv) Be able to identify whether a particular portfolio is efficient or not
v) Explain the benefits of portfolio diversification
vi) Structure an efficient portfolio for a desired level of risk
vii) Model minimum investment requirements for specified assets that are selected
for inclusion in an identified portfolio
I envision the exam to have six questions of the following nature and weight (this is not
locked in stone however!!!!!):
1. Program the spreadsheet, Solver settings and VBA button macro for a DEA
model to identify efficient assets (15 points)
2. Structure efficient portfolios for an n-asset problem with different stated criteria.
Answer one to two financial theory questions about portfolio diversification and
efficiency. (25 points).
3. Investigate a given spreadsheet model to determine the nonlinear nature of the
underlying algebraic model. Be able to classify the model based on its tier level.
Be prepared to identify the best engine to solve the model and interpret the
optimality of the solution (10 points).
4. Create, optimize and interpret a capital budgeting model (20 points)
5. Use a cash flow model to evaluate different cash management options (20 points)
6. Use a model to explain a municipal bond underwriting application; program
Solver to identify an optimal solution (10 points)