Unit 6 (1 question)

A frequently used metric by analysts is the yield, or credit, spread. Common methods of computing this would be comparing which of these?

Bonds of similar quality and different maturities, Bonds of different quality and similar maturities

capital goods

Buildings, machines, technology, and tools needed to produce goods and services.

When discussing employment and production, which of the following industries are typically more affected by a recession?

Capital goods, Durable Goods

Which of the following is considered the most accurate method of measuring GDP?

Constant dollars

Interest rates are rising. An analyst would be most likely to state that the business cycle is in which stage?

Expansion

If the Consumer Price Index (CPI) is up and consumer demand is also up, the economy is likely in which stage of the business cycle?

Expansion to peak

To reflect a more accurate picture of economic results, gross domestic product is adjusted

For inflation

Which of the following would not be considered a defensive security?

Steel company stock

Yield curve analysis plays an important role as a benchmarking and forecasting tool for the future direction of interest rates. In most cases, this analysis involves examining bonds of

a single issuer over varying maturities.

Economic Depression

at least six quarters of economic Decline

trough

business cycle occurs at the end of a contraction phase when businesses are operating at their lowest capacity levels.

Interest rates are falling. An analyst would be most likely to state that the business cycle is in which stage?

contraction

consumer durable goods

goods that have a life expectancy of more than one year (car)

nondurable goods

goods that last a short period of time, such as food, light bulbs, and sneakers

Defensive Security

stocks are generally less affected by the business cycle.

Recession

two or more consecutive quarters of economic decline

economics of fixed-income securities

Short-term interest rates are more volatile than long-term rates., Long-term bond prices react more than short-term bond prices given a change in interest rates.

A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of

an inverted yield curve. An inverted, or negative, yield curve is one that results when debt with short-term maturities has higher yields than those with maturities that are longer. A positive, or normal, yield curve results when the yields increase as maturities do.

constant dollars

dollar amounts or prices that have been adjusted for inflation; same as real dollars

cyclical securities

mirror the business cycle (also speculative), counter-cyclical stock do the opposite

Ana is a bond analyst who notices a wider credit spread between Treasury bonds and AAA corporate debt. From this, she would be most likely to infer

the economy is weakening. The reason the spread gets wider is that investors are getting out of corporate bonds and getting into Treasuries. Why would they do that? Because, as the industry says, "It is an escape to quality." When there are economic clouds on the horizon, like a recession, you would much rather have your money invested in U.S. Treasuries because you know they will pay off. Higher corporate yields come from lower market prices.