Question

The following are monthly rates of return for two market indexes. The XYZ Fund Index Monthly Return (%) -0.30 1.72 -0.42 Month Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 S&D 500 Monthly Return (%) -2.66 -1.52 1.03 10.424 5.33 1.28 1.79 -0.47 2.88 -0.61 -4.39 Compute the covariance between the rates of return for the two indexes using the data from January 2003 to July 2003. 1. 0.5206 II. 0.6074 III. 0.6074 %2 IV. 1.8381 V. 0.5206%2 Select one: O a. I, V O b. IV only c. III only d. II, III o e. V only

Answer 1

e. V only

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

B - S&D 500 Month Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 -2.66% -1.52% 1.03% 10.42% 5.33% 1.28% 1.79% The XYZ Fund Index -0.30% 1.72% -0.42% -0.47% 2.88% -0.61% -4.39% Covariance 0.005206% 11 12 13

Cell reference -

B Month S&D 500 37622 37653 37681 37712 37742 37773 37803 -0.0266 -0.0152 0.0103 0.10424 0.0533 0.0128 0.0179 The XYZ Fund Index -0.003 0.0172 -0.0042 -0.0047 0.0288 -0.0061 -0.0439 Covariance =COVARIANCE.S(C3:C9,D3:09)

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.