Question

If you were asked to graph or quantify the risk of owning IBM stock, how would you do it? What is your preferred measure of risk? How would you demonstrate that your metric captures risk adequately? Identify several S&P listed companies that you consider to be risky investments? How does rising global turmoil influence risk? The price of gold? The price of U.S. Treasury bonds? U.S. equities? Which is a riskier asset, a 3-month U.S. Treasury bond or a 10-year U.S. Treasury bond? Explain. What factors could push the yield on 6-month U.S. Treasury higher than the 10-year U.S. Treasury bond.

Answer 1

If you were asked to graph or quantify the risk of owning IBM stock, how would you do it? What is your preferred measure of risk? How would you demonstrate that your metric captures risk adequately? Identify several S&P listed companies that you consider to be risky investments? How does rising global turmoil influence risk? The price of gold? The price of U.S. Treasury bonds? U.S. equities? Which is a riskier asset, a 3-month U.S. Treasury bond or a 10-year U.S. Treasury bond? Explain. What factors could push the yield on 6-month U.S. Treasury higher than the 10-year U.S. Treasury bond.

To quantify the risk of owing IBM stock would be depicted by the volatility of the stock which is captured via Standard Deviation.

And when we are comparing a stock to S&P, comparing the riskiness, an appropriate measure would be the Beta of Stock. Beta of a stock is the magnitude of change in Index price and the relative price of the stock.

Rising global turmoil increases risk. As a company that has global exposure can no longer project correctly what will be the future income or costs as regulations might change.

The price of Gold rises with rise in global turmoil as Gold is considered a safe investment and in times of Global uncertainties, investors flee to safe investments.

The Price of U.S Treasury Bonds will increase, as again US Treasury are considered a safe investment and as more investors will buy these safe investment.

U.S Equities will decrease as more turmoil means more riskiness and it might lead to a negative outcome. With the probability of negative outcome higher investors will price that in and stock prices will correct downward.

A 10 year US Treasury Bond is riskier than 3 month US Treasury as over a longer term, there are multiple risks such as credit worthiness, interest rate climate, inflation, etc.

The yields on 6 months Treasury will be higher than 10 year when there is high uncertainties about policy or global trade in the near term, due to which investors will demand higher premium to hold these short term securities.