Which of the following is a second way of formulating the Markowitz model?
A)Maximize the expected return of the portfolio subject to a constraint on variance.
B)Minimize the expected return of the portfolio subject to a constraint on variance.
C)Maximize the variance of the portfolio subject to a constraint on the expected return of the portfolio.
D)Maximize the variance of the portfolio with no constraint needed for the expected return of the portfolio.

Question

Quizplus · Accepted Answer

The Markowitz model aims to maximize the expected return of a portfolio while minimizing its variance. This can be formulated as maximizing the expected return of the portfolio subject to a constraint on variance, as stated in choice A. Choice B is incorrect as it suggests minimizing the expected return, which is not the objective of the model. Choice C is also incorrect as it suggests maximizing variance, which is the opposite of the model's goal of minimizing variance. Choice D is incorrect as it suggests maximizing variance without any consideration for the expected return, which goes against the objective of the model.

Which of the Following Is a Second Way of Formulating