Question

Florida Company (FC) and Minnesota Company (MC) are both Multinational Corporations. Their stock returns for the past three years were as follows: FC: -7 percent, 16 percent, 24 percent; MC: 10 percent, 12 percent, 26 percent. You are required to calculation the followings: (Please show correct formulas and detailed workouts)

a. The covariance between the returns of FC and MC. (Ignore the correction for the loss of a degree of freedom set out in the text.)

b. The standard deviations of returns for FC and MC. (Ignore the correction for the loss of a degree of freedom set out in the text.)

Please help (multipart question)

Answer 1

A. The formula for covariance is

First lets calculate X bar (average of X)=(7+16+24)/3=47/3=15.67
Y bar=(10+12+26)/3=48/3=16

Covariance= (7-15.67)*(10-16)+(16-15.67)*(12-16)+(24-15.67)*(26-16)/3

=44.67

B. We know that standard deviation is given by

Using the formula above, we get

Standard deviation, FC=6.94
Standard deviation, MC=7.12