Consider the variance-covariance matrix of annual returns shown below for three stocks. The forecasted annual returns are .09, .06 and .05 for stocks 1, 2 and 3, respectively.

Develop an algebraic optimization model that will find a minimum variance portfolio with an expected return of at least .07, such that at most 80% of the portfolio is stock 2 and at least 10% of the portfolio is stock 3.

 

Variance-Covariance Matrix for Returns of Stocks 1 2 and 3 1 2 3 1 .1 -.025 .90 2 .04 .015 .09 3.