Interest and S & P500 Nikkei Russell

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Instruction to students:
1. This assignment should be completed individually and neatly. 2. Marks will be given to equations and workings.
3. Plagiarism will be treated seriously. ZERO Marks will be given for assignments that have been found wholly or partly involved in plagiarism (no matter these assignments are from the original authors or from the plagiarists). 4. Answer should be corrected to 2 decimal places if any.

5. Words limit: each essay type part cannot be answered by more than 150 words. 6. The assignment due is 14 March 2011 (Monday) during lecture. 7. Late submission and E-mail submission will NOT be accepted. 8. Total: 3 Questions (50 marks)

Question 1

The following are monthly percentage price changes for market indexes.

|Month |DJIA |S&P500 |Russell 2000 |Nikkei | |1 |0.03 |0.02 |0.04 |0.04 | |2 |0.07 |0.06 |0.10 |-0.02 | |3 |-0.02 |-0.01 |-0.04 |0.07 | |4 |0.01 |0.03 |0.03 |0.02 | |5 |0.05 |0.04 |0.11 |0.02 | |6 |-0.06 |-0.04 |-0.08 |0.06 |

Compute the following.

a. Average monthly rate of return for each index. (2 marks) b. Standard deviation for each index. (4 marks)
c. Covariance between the rates of return for the following indexes: DJIA – S&P500
S&P500 – Russell 2000
S&P500 – Nikkei
Russell 2000 – Nikkei (4 marks)
d. The correlation coefficients for the same four combinations. (4 marks) e. Using the...
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