WWWCHAPTER 5 Risk and Return 261Remember to check the book’s Web site at
http://www.aw.com/gitman
for additional resources, including additional Web exercises.f. Rework parts dand eunder each of the following circumstances:
(1) A rise of 1% in inflationary expectations causes the risk-free rate to rise
to 8% and the market return to rise to 11%.
(2) As a result of favorable political events, investors suddenly become less
risk-averse, causing the market return to drop by 1%, to 9%.WEB EXERCISE Go to the RiskGrades Web site,www.riskgrades.com. This site, from
RiskMetrics Group, provides another way to assess the riskiness of stocks and
mutual funds. RiskGrades provide a way to compare investment risk across all
asset classes, regions, and currencies. They vary over time to reflect asset-specific
information (such as the price of a stock reacting to an earnings release) and gen-
eral market conditions. RiskGrades operate differently from traditional risk mea-
sures, such as standard deviation and beta.
- First, learn more about RiskGrades by clicking on RiskGrades Help Center
and reviewing the material. How are RiskGrades calculated? What differ-
ences can you identify when you compare them to standard deviation and
beta techniques? What are the advantages and disadvantages of this mea-
sure, in your opinion? - Get RiskGrades for the following stocks using the Get RiskGradepull-down
menu at the site’s upper right corner. You can enter multiple symbols sepa-
rated by commas. Select all datesto get a historical view.
What do the results tell you?- Select one of the foregoing stocks and find other stocks with similar risk
grades. Click on By RiskGradeto pull up a list. - How much risk can you tolerate? Use a hypothetical portfolio to find out.
Click on Grade Yourself,take a short quiz, and get your personal
RiskGrade measure. Did the results surprise you?
Company SymbolCitigroup C
Intel INTC
Microsoft MSFT
Washington Mutual WM