Question

True or false? The objective function of the risk and return model is a 25 4 quadratic function. The statement is true. The statement is false. True or false? For the risk and return model the mean return is the simple 25 9 sum of individual returns. The statement is true. The statement is false. True or false? Quadratic math programming models have quadratic 25 4 objective functions and linear constraints. The statement is true. The statement is false.

Answer 1

1) :-the statement is true that objective function of the risk returns model is a quadratic function.

The risk of investment in terms of variations of return is calculated as a quadratic function of investment amount.

2) :-this statement is false

Because mean rate of return

-mean (expected) value of the probability distribution of possible outcomes

-weighted average of the outcomes using the probabilities as weight

-represents the AVERAGE PAYOFF that investors will receive in the future if the probability distributions do not change over a long period of time

expected rate of return (formula)

^r = sum (Pri * ri)

Sum of (outcome*probability of outcome) for every possible outcome.

weighted average of all possible returns

3) :- this state ment is true that quadratic math programming model have quadratic function and linear costraint.

Quadratic Programming (QP)

An NLP model in which the objective function includes only quadratic nonlinear terms and the constraints are all linear.

A mathmatical programming technique that permits decision makers to set and rank multiple objective functions.

4) :- this statement is false

theRisk Return Ratio

The higher the risk, the more possibility it is to get a high return. But the flip side is the higher the risk the more possibility to lose everything. statement is false.