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Problem 6-07 The following are monthly percentage price changes for four market indexes. Month DJIA Nikkei 1 0.04 0.03 0.06 2 3 S&P 500 Russell
Problem 6-07 The following are monthly percentage price changes for four market indexes. Month DJIA Nikkei 1 0.04 0.03 0.06 2 3 S&P 500 Russell 2000 0.02 0.04 0.05 0.09 -0.01 -0.04 0.04 0.04 0.03 0.11 -0.03 -0.06 -0.01 0.01 0.05 -0.05 -0.02 0.07 0.02 0.02 4 4 5 6 0.07 Compute the following. a. Average monthly rate of return for each index. Round your answers to five decimal places. DJIA: S&P 500: Russell 2000: Nikkei: b. 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): 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): Correlation (S&P 500, Russell 2000): Correlation (S&P 500, Nikkei): Correlation (Russell 2000, Nikkei): 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 -Select- v correlation, meaningful reduction in risk -Select- | if they are combined. Since S&P 500 and Nikkei have a strong -Select- v correlation, meaningful reduction in risk -Select- v if they are combined
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