MAF759: Quantitative Methods for Finance - Analytical Methods - Rio Tinto Limited (RIO) - Assessment Answer

Internal Code: 1AHACF Code: MAF759

Analytical Methods Assessment Answer

Assignment Task: MAF759 You have been directed to study Rio Tinto Limited (RIO) stock performances, and have been provided monthly-adjusted close prices of RIO, S&P500 index and ASX 200 index for the period of January 2001 – December 2018. Note: Data available via Resources – Assessment resources -- Assignment folder Please complete the following questions: MAF759 1. Compute descriptive statistics for monthly RIO prices, S&P500 index and ASX 200 index, respectively. 2. Calculate monthly discrete returns (hint: holding period returns) for the S&P 500 index, ASX 200 index, and RIO stocks prices, respectively. Construct the frequency distributions (including relative frequency and cumulative frequency) for RIO returns, S&P 500 index returns and ASX 200 index returns, respectively. Use 10 intervals. MAF759 3. Assuming Normality, what is the probability of the S&P 500 index returns above 5%? What is the probability of the ASX 200 index returns being between -2% and 2%? 4. What is the covariance of S&P 500 index returns and ASX 200 index returns? Is the correlation coefficient of RIO returns and ASX 200 index returns significant at 1% level? Provide evidence(s). MAF759 5. In order to predict monthly RIO returns, your supervisor advised three linear regression models: Model A: Assuming a linear relationship between RIO returns and S&P 500 index returns. Model B: Assuming a linear relationship between RIO returns and ASX 200 index returns Model C: Assuming a linear relationship between RIO returns and S&P 500 index returns and ASX 200 index returns jointly. MAF759 5.1: For model A, test if the intercept coefficient is significant at 5% level? For model B, Calculate 95% confidence interval for the slope coefficient. 5.2: For model A and model B, which model you would recommend to your supervisor? Provide your reason(s). 5.3: For model C, determine if the S&P 500 index returns and ASX 200 index returns jointly statistically related with RIO returns at 1% level? MAF759

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