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INTRODUCTION TO PORTFOLIO MANAGEMENT 7. The following are monthly percentage price changes for four market indexes: Month DJIA Russell 2000 NIKKEI 1 2 3 4
INTRODUCTION TO PORTFOLIO MANAGEMENT 7. The following are monthly percentage price changes for four market indexes: Month DJIA Russell 2000 NIKKEI 1 2 3 4 5 6 03 .07 -02 .01 .05 -.06 S&P 500 .02 .06 -01 .03 .04 .04 10 -.04 .03 .11 -.08 .04 --02 .07 .02 .02 .06 --04 Compute the following: a. Expected monthly rate of return for each series. b. Standard deviation for each series. c. Covariance between the rates of return for the following indexes: DJIAS&P 500 S&P 500Russell 2000 S&P 500NIKKEI Russell 2000NIKKEI d. The correlation coefficients for the same four combinations. e. Using the 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. Discuss the two portfolios
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