Question

Below is actual price and dividend data for three companies for each of seven months.
	Security A		Security B		Security C
Time	Price	Dividend	Price	Dividend	Price	Dividend
1	$48.27		$25.50		$178.00
2	$49.10		$23.85		$165.00
3	$52.60	$2.50	$19.95	$2.50	$174.00	$15.00
4	$51.35		$24.65		$182.00
5	$53.25		$25.10		$183.00
6	$53.92	$2.25	$22.78	$2.50	$187.00	$12.50
7	$52.00		$26.18		$193.00

A. Compute the rate of return for each company for each month (use simple return formula).
B. Compute the average rate of return for each company.
C. Compute the standard deviation of the rate of return for each company (use population variance formula. i.e. divide by N, not (N-1) ).
D. Compute the covariance and correlation coefficients between all possible pairs of securities (again, use population formula).
E. Compute the average return and standard deviation for the following portfolios:
i.            ½ A + ½ B
ii.            ½ A + ½ C
iii.            ½ B + ½ C
iv.            1/3 A + 1/3 B + 1/3 C

Answer 1