NOTE: PLEASE ANSWER THIS QUESTION AS FAST AS POSSIBLE!

Q.No.1. (Marks - 10)

The following are the monthly closing prices (NOT HPYs) for Madison Cookies and for Sophie Electric during a six-month period.

Month Madison Cookies Sophie Electric

1 200 200

2 250 150

3 300 100

4 325 75

5 335 70

6 330 80

7 315 95

8 290 105

9 250 150

10 210 175

11 205 190

12 200 205

Compute the following:

a. HPY for each month for both of the companies

b. Average monthly rate of return for each stock

c. Covariance between the rates of return

d. The correlation between the rates of return

e. Would these two stocks be good choice for diversification? Why or why not?

f. If you invest 50 percent in each stock, then what risk and return do you expect from this portfolio?