Question
P 6-07 The following are monthly percentage price changes for four market indexes. Month DJIA S&P 500 Russell 2000 Nikkei 1 0.02 0.01 0.05 0.05
P 6-07
The following are monthly percentage price changes for four market indexes.
Month | DJIA | S&P 500 | Russell 2000 | Nikkei | ||||
1 | 0.02 | 0.01 | 0.05 | 0.05 | ||||
2 | 0.08 | 0.07 | 0.12 | -0.02 | ||||
3 | -0.02 | -0.02 | -0.03 | 0.09 | ||||
4 | 0.01 | 0.02 | 0.02 | 0.02 | ||||
5 | 0.05 | 0.03 | 0.14 | 0.02 | ||||
6 | -0.07 | -0.02 | -0.10 | 0.05 |
Compute the following.
- Average monthly rate of return for each index. Round your answers to five decimal places.
DJIA:
S&P 500:
Russell 2000:
Nikkei:
- 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-negative OR positive correlation, meaningful reduction in risk -Select-is not observed OR is observed if they are combined.
Since S&P 500 and Nikkei have a strong -Select-negative OR positive correlation, meaningful reduction in risk -Select-is not observed OR is observed if they are combined.
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