1. Suppose you have 600 monthly observations of stock market returns. The mean value is 0.55% and the standard deviation is 6.25. What would be the lower boundary under normality so that only 5% of your observations are less than this calculated value? What conclusion would you draw if 30 of those 600 observations fall below that lower boundary?
2. Carefully explain how you would calculate the weights in a market cap weighted stock market index, the weights in a price weighted index and the weights in an equally weighted index. Why is the market cap weighted index widely used when providing investable products following a stock market index?