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# maximising returns in a portfolio watch

1. 3. An investor must choose what proportion of wealth to spend on each of two risky assets.Let the return to these two assets be X and Y respectively, and let w be the proportionof wealth spent on X (so 1 − w is spent on Y). So the return to the chosen portfolio isR = wX + (1 − w)Ythe asset returns are random, with E(X) = μX = 0.05, E(Y) = μy = 0.01, and the variancesare σ2X= 0.002 and σ2Y= 0.004

(a) [30%] Find the fraction of the portfolio to be invested in asset X if the investor wishesto maximise the expected return to the portfolio. Explain your answer.

Is this kind of a trick question, as my thinking is you would allocate 100% of the portfolio to asset X as it has the highest expected returns?
2. (Original post by mikegmike)
3. An investor must choose what proportion of wealth to spend on each of two risky assets.Let the return to these two assets be X and Y respectively, and let w be the proportionof wealth spent on X (so 1 − w is spent on Y). So the return to the chosen portfolio isR = wX + (1 − w)Ythe asset returns are random, with E(X) = μX = 0.05, E(Y) = μy = 0.01, and the variancesare σ2X= 0.002 and σ2Y= 0.004

(a) [30%] Find the fraction of the portfolio to be invested in asset X if the investor wishesto maximise the expected return to the portfolio. Explain your answer.

Is this kind of a trick question, as my thinking is you would allocate 100% of the portfolio to asset X as it has the highest expected returns?
Agreed.

A variation on the question here has more meat, and I suspect is the original question on which yours is based.

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The text passage contains a mathematical question related to maximizing the expected return of a portfolio with two risky assets. The question is whether to allocate 100% of the portfolio to the asset with the highest expected return. An answer is provided, agreeing with the idea of allocating 100% to the asset with the highest expected return.
single_question_with_answer
Given a text passage, determine:
    1. If it contains a mathematical question (including word problems or calculations)
    2. If an answer to that mathematical question is provided in the text

First, describe the content structure you found in 1-2 sentences.

Then provide your analysis in the following format:
TYPE: <one of the following values>
- NO_QUESTION
- SINGLE_QUESTION
- SINGLE_QUESTION_WITH_ANSWER
- MULTIPLE_QUESTIONS
- MULTIPLE_QUESTIONS_WITH_ANSWERS
system
You are Here: Home >< Maths

# maximising returns in a portfolio watch

1. 3. An investor must choose what proportion of wealth to spend on each of two risky assets.Let the return to these two assets be X and Y respectively, and let w be the proportionof wealth spent on X (so 1 − w is spent on Y). So the return to the chosen portfolio isR = wX + (1 − w)Ythe asset returns are random, with E(X) = μX = 0.05, E(Y) = μy = 0.01, and the variancesare σ2X= 0.002 and σ2Y= 0.004

(a) [30%] Find the fraction of the portfolio to be invested in asset X if the investor wishesto maximise the expected return to the portfolio. Explain your answer.

Is this kind of a trick question, as my thinking is you would allocate 100% of the portfolio to asset X as it has the highest expected returns?
2. (Original post by mikegmike)
3. An investor must choose what proportion of wealth to spend on each of two risky assets.Let the return to these two assets be X and Y respectively, and let w be the proportionof wealth spent on X (so 1 − w is spent on Y). So the return to the chosen portfolio isR = wX + (1 − w)Ythe asset returns are random, with E(X) = μX = 0.05, E(Y) = μy = 0.01, and the variancesare σ2X= 0.002 and σ2Y= 0.004

(a) [30%] Find the fraction of the portfolio to be invested in asset X if the investor wishesto maximise the expected return to the portfolio. Explain your answer.

Is this kind of a trick question, as my thinking is you would allocate 100% of the portfolio to asset X as it has the highest expected returns?
Agreed.

A variation on the question here has more meat, and I suspect is the original question on which yours is based.

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Updated: May 22, 2016
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### Cambridge interviews

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### University open days

• University of Roehampton
Sat, 17 Nov '18
• Edge Hill University
Faculty of Health and Social Care Undergraduate
Sat, 17 Nov '18
• Bournemouth University
Sat, 17 Nov '18
Poll
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### Maths Forum posting guidelines

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Writing equations the easy way

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user
The text passage contains a mathematical question related to maximizing the expected return of a portfolio with two risky assets. The question is whether to allocate 100% of the portfolio to the asset with the highest expected return. An answer is provided, agreeing with the idea of allocating 100% to the asset with the highest expected return.

TYPE: SINGLE_QUESTION_WITH_ANSWER