Question
Muir investments carries an investment portfolio of stocks. Currently $500,000 of funds are available and the entire amount must be invested. The three-stock option Muir
Muir investments carries an investment portfolio of stocks. Currently $500,000 of funds are available and the entire amount must be invested. The three-stock option Muir is considering and the relevant financial data are as follows:
Stock A Stock B Stock C
Price per share $50 $40 $60
Annual rate of return 12% 10% 13%
Risk measure 8 4 10
The risk measure indicates the relative uncertainty associated with the stock in terms of its realizing the projected annual return; higher values indicate greater risk. The risk measures are provided by the firms top financial advisor. Muirs top management has stipulated the following investment guidelines: the annual rate of return for the portfolio must be at least 11%, and Stock B must account for at least 20% of the total dollar investment.
Set the problem up as a linear programming problem that minimizes risk. Dont forget the nonnegativity constraint. DO NOT SOLVE!!!!
Which of the following constraint would require that Stock B account for at least 20% of the total dollar investment.
a. | .8x1 + .2x2 + .2x3 > 0
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b. | .2x1 + .8x2 + .2x3 > 0
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c. | -.2x1 + .2x2 - .2x3 > 0
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d. | -.2x1 + .8x2 - .2x3 > 0 |
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