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:

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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Minimize portfolio variance = 0.16X2 +0.2XY+ 0.09Y X+Y=1 (all funds must be invested) subject to 0.11X0.08 0.09 (return on the investment) X, Y = 0 where X = proportion of money invested in stock 1 Y = proportion of money invested in stock 2