Use the table below to answer the following question(s).
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%.

Develop a quadratic optimization 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 expected variance of the resulting portfolio?
A)0.014
B)0.010
C)0.009
D)0.012

Question

Use the table below to answer the following question(s).
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%.
  
Develop a quadratic optimization 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 expected variance of the resulting portfolio?
A)0.014 
B)0.010 
C)0.009 
D)0.012

Quizplus · Accepted Answer

The expected variance of the resulting portfolio is 0.014. This is because the variance of the portfolio is equal to the weighted average of the variances of the individual assets in the portfolio. The weights are the proportions of each asset in the portfolio. In this case, the portfolio is equally weighted, so the variance of the portfolio is equal to the average of the variances of the individual assets. The variance of each individual asset is 0.014, so the variance of the portfolio is 0.014.

Use the Table Below to Answer the Following Question(s)