Data Exploration - connect - CH 5 Understanding Risk

 

For detailed instructions on using Federal Reserve Economic Data (FRED) online to answer each of the following problems, visit www.mhhe.com/moneyandbanking6e and refer to FRED Resources and Data Exploration Hints.

 

1. Plot the percent change from a year ago of the Wilshire 5000 stock index at a monthly frequency (FRED code: WILLS000PR). Visually, has the risk of the Wilshire 5000 index changed over time? (LO2)

 

 

1. Another way to understand stock market risk is to examine how investors expect risk to evolve in the near future. The DJIA volatility index (FRED code: VXDCLS) is one such measure. Plot the level of this volatility index at a monthly frequency since October 1997 and, as a second line, the percent change from a year ago of the Wilshire 5000 index, also at a monthly frequency (FRED code: WILL5000PR). Compare their patterns. (LO2)

 

1. For the period since 2005, plot on one graph the 30-year conventional mortgage rate (FRED code: MORTGAGEOUS) and a measure of an adjustable mortgage rate (FRED code: MORTGAGESUS). Explain their systematic relationship using Core Principle 2: Risk requires compensation. (LO2)