5%. Formulate the appropriate nonlinear program. Minnie assumes that the more recent returns are more likely to occur. She assumes that the probability of occurrence of scenario 1 is 40%, of scenario 2 is 30%, of scenario 3 is 20% and of scenario 4 is 10%. Annual Returns
Financial planner Minnie Margin wishes to develop a mutual fund portfolio based on the Markowitz portfolio model. She needs to determine the proportion of the portfolio to invest in each of the five mutual funds listed below so that the variance of the portfolio is minimized subject to the constraint that the expected return of the portfolio be at least 5%. Formulate the appropriate nonlinear program. Minnie assumes that the more recent returns are more likely to occur. She assumes that the probability of occurrence of scenario 1 is 40%, of scenario 2 is 30%, of scenario 3 is 20% and of scenario 4 is 10%.
|
|
Annual Returns (Planning Scenarios) |
|||
|
Mutual Fund |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
International Stock |
22.37 |
26.73 |
4.86 |
2.17 |
|
Large-Cap Value |
15.48 |
19.64 |
11.50 |
-5.25 |
|
Mid-Cap Value |
17.42 |
20.07 |
-4.97 |
-1.69 |
|
Small-Cap Growth |
23.18 |
12.36 |
3.25 |
3.81 |
|
Short-Term Bond |
9.26 |
8.81 |
6.15 |
4.04 |
If Minnie wants a minimum return of 8%, what is the optimal allocation and what is the expected risk?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
