An investor has Rs. 5000 and two potential investments. Let xj for j = 1 and j = 2 denote his allocation to investment j in thousands. From historical data, investments 1 and 2 have an expected annual...

An investor has Rs. 5000 and two potential investments. Let xj

for j = 1 and

j = 2 denote his allocation to investment j in thousands. From historical data,

investments 1 and 2 have an expected annual return of 20 and 16 percent,

respectively. Also, the total risk involved with investments 1 and 2, as

measured by the variance of total return, is given by 2x12 +x22 + (x1 + x2)2,

so that risk increases with total investment and with the amount of each

individual investment. Formulate the problem so that the investor would

maximize his expected return and at the same time minimize his risk.

Aug 19, 2022

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