Janet Smith Investing In Mutual Funds Assignment

Assignment Task

Janet Smith is interested in investing in the following set of mutual funds whose returns are normally distributed with the indicated means and standard deviations:

Based on historic data, the correlations between the mutual funds are as follows:

1. Assume that Janet is willing to assume the risk associated with a 5% standard deviation on her portfolio. What is the optimal percentage allocation in each fund that will give Janet the maximum expected return for this level of risk? Make sure to copy the Forecast Chart along with the OptQuest Chart  within your spreadsheet.

Hints:

1. The decision variables pertain to the proportion P_i that is to be invested in each fund rather than how much to invest in each fund.
2. Each decision variable is bounded by:  P_i<=1 and P_i >= 0 (continuous)
3. Make sure that you have a constraint restricting the sum of the P_i's = 1
4. Don't forget to add a "requirement" restricting the standard deviation of the average max returns to be less than or equal to 5% 
5. Don't forget to incorporate the provided correlations among the assumption cells.
6. Don't forget to adjust your "run Preferences" for OptQuest (e.g., Latin Hyper Cube with 500 runs).
7. Don't forget to copy the solution from the OptQuest results window to your spreadsheet.

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