Question: In the Markowitz portfolio optimization model defined in equations (8.10) through (8.19), the decision variables represent the percentage of the portfolio invested in each of

In the Markowitz portfolio optimization model defined in equations (8.10) through (8.19), the decision variables represent the percentage of the portfolio invested in each of the mutual funds. For example, FS = 0.25 in the solution means that 25% of the money in the portfolio is invested in the foreign stock mutual fund. It is possible to define the decision variables to represent the actual dollar amount invested in each mutual fund or stock. Redefine the decision variables so that now each variable represents the dollar amount invested in the mutual fund. Assume an investor has $50,000 to invest and wants to minimize the variance of his or her portfolio subject to a constraint that the portfolio returns a minimum of 10%. Reformulate the model given by (8.10) through (8.19) based on the new definition of the decision variables. Solve the revised model with LINGO or Excel Solver.

Step by Step Solution

3.48 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

Define the variables to be the dollars invested the in mutual fund For example IB 500 means that 500 ... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

226-M-N-A-O (79).docx

120 KBs Word File

Students Have Also Explored These Related Numerical Analysis Questions!