
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Q-1: The following are the monthly rates of return for Madison Software
Corporation and Kayleigh Electric during a six month period:
Month
Madison Software
Kayleigh Electric
1
-0.04
0.07
2
0.06
-0.02
3
-0.07
-0.10
4
0.12
0.15
5
-0.02
-0.06
6
0.05
0.02
Compute the following:
I. Expected monthly rate of return for each stock.
Standard deviation of returns for each stock.
II.
III.
The covariance between the rates of return.
IV.
The correlation coefficient between the rates of return.
What level of coefficient did you expect? How did your expectations compare with
the computed correlation? Would these two stocks offer a good chance for
diversification? Why or why not?
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