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Find out what is optimal distribution of investment funds

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Reference no: EM132199811

Question - Let's assume that we live in a world where investors want returns that are disproportionately higher for each extra unit of risk.

For example, if an investor can choose between an investment that has a return of 8% and risk of 3% or an investment that has a risk of 6% (double that of the first investment), then the return of the second investment has to be MORE than double than that of the first investment.

Can we set up a linear optimization problem to find out what is the optimal distribution of investment funds between these two investments? Why or why not?

Reference no: EM132199811

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