Jonathan Reese Is Considering Three Stocks in Which to Invest

question 58

Essay

Jonathan Reese is considering three stocks in which to invest with a fixed budget. The table below provides information on Jonathan's expected returns for each stock. The table also provides information, collected from market researchers, on the variance-covariance matrix of the individual stocks. He expects a total return of at least 10%. $$\begin{array} { | l | c | l | l | l | l | l | } \hline \begin{array} { l } \text { Reese's Stock } \\\text { Investment } \\\text { Plan }\end{array} & & & & & & \\\hline & & & & & & \\\hline \text { Data } & & & & & \\\hline & \text { Expected } & & &{ \text { Variance-Covariance Matrix } } \\\hline & \text { Return } & & & \text { Stock 1 } & \text { Stock 2 } & \text { Stock 3 } \\\hline \text { Stock 1 } & 10 \% & & \text { Stock 1 } & 0.021 & 0.018 & - 0.003 \\\hline \text { Stock 2 } & 11 \% & & \text { Stock 2 } & 0.018 & 0.070 & 0.006 \\\hline \text { Stock 3 } & 9 \% & & \text { Stock 3 } & - 0.003 & 0.006 & 0.003 \\\hline \begin{array} { l } \text { Target } \\\text { Retum }\end{array} & 10 \% & & & & & \\\hline\end{array}$$ Using the table above, provide the objective function for minimal variance, and the constraints for creating an optimization model.

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