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The following are monthly percentage price changes for two market indices. ...

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Finance

The following are monthly percentage price changes for two market indices.

Month

S&P 500

ASX 200

1

0.01

0.03

2

0.05

-0.01

3

-0.01

0.07

4

0.03

0.02

5

0.04

0.02

6

-0.04

0.06

Compute the following:

A. Average monthly rate of return for each index (1 mark)

B. Standard deviation for each index (1 mark)

C. Covariance between the rates of return for the indices (2 mark)

D. The correlation coefficients for the indices (1 mark)

E. Using the answers from A, B, and D, calculate the expected return and standard deviation of a portfolio consisting of equal parts of the S&P and the ASX 200. Discuss the two portfolios (2 mark)

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