Portfolio Selection and Optimal Financial Investment in Nigerian Economy

Abstract

We studied Portfolio Selection and Optimal Financial Investment in the Nigerian economy. We used the instruments – liquidity, risk and return on investment as the basis for the determination of the stocks to choose, in order to form the portfolio. Thereafter we used the ratios of these instruments to establish the effect of one instrument on the other for the available stocks. We then translated the problem to a Linear programming Problem(an optimization problem) which we solved using the simplex method. We were able to determine the three stocks out of the available five stocks to choose from with the amount to invest on each obtained, to maximize profit on investment. In doing this, we devised two methods. For the first method, after making the first choice of stock to invest in, we retook the ratios of the instruments and established a new optimization problem and a new result, that is, the second best stock to invest in. We also went through the same process to make the third choice. For the second method, we took the ratios once and used same for the second and third choices of stocks to invest in. The two methods gave us the same choices of stocks to invest in but with different capital requirement for investment