=10-30 Pat McCormack, a financial advisor for Investors R Us, is evaluating two stocks in a particular
Question:
=10-30 Pat McCormack, a financial advisor for Investors R Us, is evaluating two stocks in a particular industry. He wants to minimize the variance of a portfolio consisting of these two stocks, but he wants to have an expected return of at least 9%. After obtaining historical data on the variance and returns, he develops the following nonlinear program:
Minimize portoflio variance subject to
= + 0 16 0 2 0 + 09 2 2 . . X XY Y .
X + =
+ ≥
Y X Y 1
0 11 0 08 0 09
( )
. . . (
all funds must be invested return on the investment)
X Y, ≥ 0 where X
Y
=
=
proportion of money invested in stock proportion of mo 1
ney invested in stock 2 Solve this using Excel and determine how much to invest in each of the two stocks. What is the return for this portfolio? What is the variance of this portfolio?
Step by Step Answer:
Quantitative Analysis For Management
ISBN: 9789332578692
12th Edition
Authors: Barry Render, Ralph M. Stair, Michael E. Hanna