- The Following Are Monthly Percentage Price Changes For Four Market Indexes Month Djia 0 02 0 06 0 01 0 02 0 06 0 04 S 1 (42.02 KiB) Viewed 37 times
- The Following Are Monthly Percentage Price Changes For Four Market Indexes Month Djia 0 02 0 06 0 01 0 02 0 06 0 04 S 2 (21.81 KiB) Viewed 37 times
The following are monthly percentage price changes for four market indexes. Month DJIA 0.02 0.06 -0.01 0.02 0.06 -0.04 S&P 500: Russell 2000: S&P 500: 0.01333 0.02666 Russell 2000: 0.02500 1 2 Compute the following. a. Average monthly rate of return for each index. Round your answers to five decimal places. DJIA: 0.01833 0.0398 WN 0.0665 3 4 In 60 5 Nikkei: b. Standard deviation for each index. Do not round intermediate calculations. Round your answers to four decimal places. DJIA: 0.0392 S&P 500 Russell 2000 0.02 0.05 -0.02 0.04 0.04 -0.05 0.9558 0.03 0.09 -0.03 0.04 0.10 -0.07 -0.9610 Nikkei 0.03 -0.01 0.05 0.01 0.01 0.06 Nikkei: 0.0266 c. Covariance between the rates of return for the following indexes. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to six decimal places. Covariance (DJIA, S&P 500): 0.001537 Covariance (S&P 500, Russell 2000): 0.001587 Covariance (S&P 500, Nikkei): 0.004427 Covariance (Russell 2000, Nikkei): 0.000710 d. The correlation coefficients for the same four combinations. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to four decimal places. Correlation (DJIA, S&P 500): 0.9392 Correlation (S&P 500, Russell 2000): Correlation (S&P 500, Nikkei): Correlation (Russell 2000, Nikkei): -0.9363
e. Using the unrounded answers from parts (a), (b), and (d), calculate the expected return and standard deviation of a portfolio consisting of equal parts of (1) the S&P and the Russell 2000 and (2) the S&P and the Nikkei. Do not round intermediate calculations. Round your answers to five decimal places. Expected return (S&P 500 and Russell 2000): Standard deviation (S&P 500 and Russell 2000): Expected return (S&P 500 and Nikkei): Standard deviation (S&P 500 and Nikkei): Since S&P 500 and Russell 2000 have a strong positive correlation, meaningful reduction in risk is not observed if they are combined. Since S&P 500 and Nikkei have a strong negative correlation, meaningful reduction in risk is observed if they are combined. 0.00494 0.02951 0.05228 0.03231