Q-1: The following are the monthly rates of return for Madison Software Corporation and Kayleigh Electric during a six month period: Month Madison Software Kayleigh Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02 Compute the following: I. Expected monthly rate of return for each stock. Standard deviation of returns for each stock. II. III. The covariance between the rates of return. IV. The correlation coefficient between the rates of return.

Q-1: The following are the monthly rates of return for Madison Software Corporation and Kayleigh Electric during a six month period: Month Madison Software Kayleigh Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02 Compute the following: I. Expected monthly rate of return for each stock. Standard deviation of returns for each stock. II. III. The covariance between the rates of return. IV. The correlation coefficient between the rates of return.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter6: Risk And Return

Section: Chapter Questions

Problem 4P: An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama-French...

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An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama-French factors for each day in the sample (SMBt and HMLt), and estimated the Fama-French regression model shown in Equation 6-21. The estimated coefficients were ai = 0, bi = 1.2, ci = 0.4, and di = 1.3. On April 1, the market return was 10%, the return on the SMB portfolio (rSMB) was 3.2%, and the return on the HML portfolio (rHML) was 4.8%. Using the estimated model, what was the stocks predicted return for April 1?
The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month Madison Cookies Sophie Electric 1 -0.02 0.09 2 0.05 -0.03 3 -0.08 -0.11 4 0.12 0.17 5 -0.02 -0.04 6 0.03 0.02 Compute the following. Do not round intermediate calculations. Round your answers to four decimal places. Average monthly rate of return R̅i for each stock. Madison Cookies: Sophie Electric: Standard deviation of returns for each stock. Madison Cookies: Sophie Electric: Covariance between the rates of return. The correlation coefficient between the rates of return. Would these two stocks be good choices for diversification? Why or why not? Madison Cookies and Sophie Electric are -Select- choices for diversification as these assets have -Select- correlatio.
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The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month Madison Cookies Sophie Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02 Compute the following: a) Average monthly rate of return for each stock b) Standard deviation of returns for each stock c) Covariance between the rates of returns d) The correlation coefficient between the rates of return e) What level of correlation would you have expected before performing your calculations? f) How did your expectations compare with the computed correlation? g) Would these two stocks be good choices for diversification? Why or why not?
The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month Madison Cookies Sophie Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02 Compute the following: a. Average monthly rate of return, Ri, for each stock b. Standard deviation of returns for each stock c. Covariance between the rates of return d. The correlation coefficient between the rates of return What level of correlation would you have expected before performing your calculations? How did your expectations compare with the computed correlation? Would these two stocks be good choices for diversification? Why or why not?
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Month Madison Cookies Sophie Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02 Average monthly rate of return for each stock