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.

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 Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter7: Linear Regression

Section: Chapter Questions

Problem 7P: The Dow Jones Industrial Average (DJIA) and the Standard Poors 500 (SP 500) indexes are used as...

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