Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 12, Problem 3CP
Summary Introduction

(a)

Case summary:

A Researcher report indicates that expansion strategy will lead to higher profit which also impact on the stock prices of the Universal auto.

To construct:

  • Business life cycle approach
  • Evaluation of recommendation

Introduction:

For long term, investors hardly rely on the business life cycle approach but for short term, investors can gain value by observing the trends of the business. For this, investors trace the growth and profits which help investor to state the economy.

Summary Introduction

(b)

Case summary:

A Researcher report indicates that expansion strategy will lead to higher profit which also impact on the stock prices of the Universal auto.

To construct:

  • Business life cycle approach
  • Evaluation of recommendation

Introduction:

For long term, investors hardly rely on the business life cycle approach but for short term, investors can gain value by observing the trends of the business. For this, investors trace the growth and profits which help investor to state the economy.

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See the chart below. The top line shows the 90 day yield on corporate bonds and the bottom line is the US Treasury bill (TB) rate for similar maturity. The yield is shown on the y-axis. Notice that the gap between the two curves got wider during the recession years of 2008-2009. Which of the following reasons can possibly explain this widening? FRED 6 сл 5 4 3 2 1 0 -1 2006 · 1950 2008 2010 2012 2014 Shaded areas indicate US recessions - 2014 research.stlouisfed.org A) During the recession, the government decided to cut the tax rate on interest earned from corporate bonds but not on interest earned on TB. B) During the recession, the relative risk on corporate bonds increased. C) During the recession, the relative liquidity of corporate bonds increased. D) Two of the first three options can explain this. E) All of the first three options can explain this.
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