=10-30 Pat McCormack, a financial advisor for Investors R Us, is evaluating two stocks in a particular

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=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?

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Related Book For  book-img-for-question

Quantitative Analysis For Management

ISBN: 9789332578692

12th Edition

Authors: Barry Render, Ralph M. Stair, Michael E. Hanna

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