Question

A portfolio consists of three stocks, S1, S2, and S3. X1, X2, and X3 represent the amount of money invested in each of the three stocks.

1. The annual rates of return of the three stocks for two possible scenarios are:
   (i) Best case scenario 5.5%, 6.5%, and 8%. (ii) Worst case scenario -1.5%, 0.5%, 4%. Management wants to make sure the overall annual return does not fall short of $10000. Which constraint meet this requirement?
   
   1. 5.5%X1+6.5%X2+8%X3 >= 10000
   2. – 0.015X1 + 0.005X2 + 0.04X3 >= 10000
   3. (0.055+(– 0.015)X1 + (0.065+0.005)X2 + (0.08+0.04)X3 >=10000
   4. None of the above

Answer 1