Use the Table Below to Answer the Following Questions) Develop a Nonlinear Optimization Models Model to Find the Optimal

question 88

Multiple Choice

Use the table below to answer the following questions) .
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%. $$\begin{array} { | l | r | l | l | l | l | r | } \hline \begin{array} { l } \text { Reese's Stuck } \\\text { Investment } \\\text { Plan }\end{array} & & & & & & \\\hline & & & & & & \\\hline \text { Data } & & & & \\\hline & \text { Expected } & & & { \text { Variance-Covariance Matrix } } \\\hline & \text { Return } & & & \text { Stack 1 } & \text { Stack 2 } & \text { Stack 3 } \\\hline \text { Stack 1 } & 10 \% & & \text { Stack 1 } & 0.021 & 0.018 & - 0.003 \\\hline \text { Stack 2 } & 11 \% & & \text { Stack 2 } & 0.018 & 0.070 & 0.006 \\\hline \text { Stack 3 } & 9 \% & & \text { Stack 3 } & - 0.003 & 0.006 & 0.003 \\\hline \begin{array} { l } \text { Target } \\\text { Retum }\end{array} & 10 \% & & & & & \\\hline\end{array}$$ Develop a Nonlinear Optimization Models model to find the optimal allocation of the budget to each stock, and variance calculations for squared terms and cross-products based on the variance-covariance matrix.
-According to the model, what is the cross-product value for Stock 1 variance?

• A) 0.00176
• B) 0.00450
• C) -0.00047
• D) 0.00194

---

Definitions:

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Sales Tax

A tax imposed by governments on the sale of goods and services, typically calculated as a percentage of the purchase price.

Price

The amount of money required to purchase a good or service, often determined by the interaction of supply and demand.