# Question: The following are monthly percentage price changes for four market

The following are monthly percentage price changes for four market indexes.

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 twoportfolios.

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 twoportfolios.

**View Solution:**## Answer to relevant Questions

The standard deviation of Shamrock Corp. stock is 19 percent. The standard deviation of Cara Co. stock is 14 percent. The covariance between these two stocks is 100. What is the correlation between Shamrock and Cara stock?The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not ...Some studies related to the efficient market hypothesis generated results that implied additional factors beyond beta should be considered to estimate expected returns. What are these other variables and why should they be ...As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U):a. If the risk-free rate is 3.9 percent and the expected market risk ...Describe the intuition underlying: (a) The macroeconomic approach to identifying risk factors, (b) The microeconomic (i.e., characteristic-based) approach to identifying risk factors. Is it conceptually and practically ...Post your question