   # Consider three investments. You are given the following means, standard deviations, and correlations for the annual return on these three investments. The means are 0.12, 0.15, and 0.20. The standard deviations are 0.20, 0.30, and 0.40. The correlation between stocks 1 and 2 is 0.65, between stocks 1 and 3 is 0.75, and between stocks 2 and 3 is 0.41. You have \$10,000 to invest and can invest no more than half of your money in any single stock. Determine the minimum-variance portfolio that yields a mean annual return of at least 0.14. ### Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

#### Solutions

Chapter
Section ### Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
Chapter 7, Problem 63P
Textbook Problem
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## Consider three investments. You are given the following means, standard deviations, and correlations for the annual return on these three investments. The means are 0.12, 0.15, and 0.20. The standard deviations are 0.20, 0.30, and 0.40. The correlation between stocks 1 and 2 is 0.65, between stocks 1 and 3 is 0.75, and between stocks 2 and 3 is 0.41. You have \$10,000 to invest and can invest no more than half of your money in any single stock. Determine the minimum-variance portfolio that yields a mean annual return of at least 0.14.

Summary Introduction

To determine: The portfolio with a minimum variance that yields a mean annual return of at least 0.14.

Non-linear programming (NLP):

Non-linear programming (NLP) is used in complex optimization problems where the objectives or constraints or sometimes both are non-linear functions of the decision variables. A model can be termed as non-linear for more than one reason.

Model:

Formula:

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