Q5- The following are monthly percentage price changes for four market indexes:

Month DJIA S&P 500 Russell 2000 NIKKEI

1 .03 .02 .04 .04
2 .07 .06 .10 –.02
3 –.02 –.01 –.04 .07
4 .01 .03 .03 .02
5 .05 .04 .11 .02
6 –.06 –.04 –.08 .06
Compute the following:
a. Expected monthly rate of return for each series.
b. Standard deviation for each series.
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.

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