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eBook Problem 6 - 0 7 The following are monthly percentage price changes for four market indexes. Month DJIA S&P 5 0 0 Russell 2

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Problem 6-07
The following are monthly percentage price changes for four market indexes.
Month DJIA S&P 500 Russell 2000 Nikkei
10.020.030.030.03
20.070.060.10-0.01
3-0.01-0.02-0.050.06
40.010.040.040.02
50.040.050.110.02
6-0.05-0.02-0.080.04
Compute the following.
Average monthly rate of return for each index. Round your answers to five decimal places.
DJIA:
0.01333
S&P 500:
0.02333
Russell 2000:
0.02500
Nikkei:
0.02667
Standard deviation for each index. Do not round intermediate calculations. Round your answers to four decimal places.
DJIA:
S&P 500:
Russell 2000:
Nikkei:
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):
Covariance (S&P 500, Russell 2000):
Covariance (S&P 500, Nikkei):
Covariance (Russell 2000, Nikkei):
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):
Correlation (S&P 500, Russell 2000):
Correlation (S&P 500, Nikkei):
Correlation (Russell 2000, Nikkei):
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
-Select-
correlation, meaningful reduction in risk
-Select-
if they are combined.
Since S&P 500 and Nikkei have a strong
-Select-
correlation, meaningful reduction in risk
-Select-
if they are combined.

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