A)The following are monthly percentage price changes for four market indexes. Month                        DJIA                            S&P 500                     Russell 2000                           Nikkei 1                         0.03                   0.02                   0.04                                         0.04 2                         0.07                   0.06                   0.10                                         −0.02 3                         −0.02                 −0.01                  −0.04                                         0.07 4                         0.01                   0.03                   0.03                                         0.02 5                         0.05                   0.04                   0.11                                         0.02 6                         −0.06                 −0.04                  −0.08                                         0.06 Compute the following. a. Average monthly rate of return for each index b. Standard deviation for each index c. Covariance between the rates of return for the following indexes: DJIA–S&P 500 S&P 500–Russell 2000 S&P 500–Nikkei Russell 2000–Nikkei 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.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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 A)The following are monthly percentage price changes for four market indexes. Month                        DJIA                            S&P 500                     Russell 2000                           Nikkei 1                         0.03                   0.02                   0.04                                         0.04 2                         0.07                   0.06                   0.10                                         −0.02 3                         −0.02                 −0.01                  −0.04                                         0.07 4                         0.01                   0.03                   0.03                                         0.02 5                         0.05                   0.04                   0.11                                         0.02 6                         −0.06                 −0.04                  −0.08                                         0.06 Compute the following. a. Average monthly rate of return for each index b. Standard deviation for each index c. Covariance between the rates of return for the following indexes: DJIA–S&P 500 S&P 500–Russell 2000 S&P 500–Nikkei Russell 2000–Nikkei 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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