P

P. [20 points] As a RMIT Eco/Finance major (in addition to being a shrewd investor), you wish to invest in two mutual funds so as to maximise your expected earnings while limiting the variance of your earnings to a given values The expected yield rates of Mutual Funds 1 and 2 are ry and r2, respectively The variance of earnings for the portfolio (t1, ) is o2z} + pxj22 +02 23. Thus the problem is Max 1121 + 1282 such that o?x} + p 19 +02 x3 = 52, (a) Use the method of Lagrange multipliers to compute the optimal investments x and x2 in Mutual Funds 1 and 2 respectively. Your expressions for x and x2 should not contain the Lagrange multiplier