Hey, I’ve been having some trouble with questions of the following sort: Which one of the following alternatives correctly assigns the attractive investment opportunities that typically occur within the indicated stage of the business cycle? Busines Cycle------------>Investment Opportunities A. Recovery------------>Commodities and real estate B. Early expansion------------>Stocks and Bonds C. Late expansion------------>Bonds and interest-sensitive stocks D. Recession------------>Commodities and bonds This is question 89 from Book 6 Exam 1 PM Answer is C If someone could kinda explain which investment opportunities are attractive in which business cycle and why, I’d greatly appreciate it. Thanks for the help!
i would have guessed C the thing is when economy is in full expansion- peaking, you know that the interest rates are high because expansion means a lot of demand for funds. That would mean that bonds and interest securities will provide you with a high return. So you buy the bonds. When recession starts output is restrained and funds begin to be in excess, leading to lower interest rates. that increases the price of income securities that were bought prior- that is your fixed investments now for other choices A . in recovery you would go for stocks because they are an leading indicator d. end of recession I would go for real estate because prices would have fallen already b. im not sure of this one but i would go for comodities because expansion means inflation and comodities are a good way to protect yourself against it plus there is an increase demand for them - probably opting for stock would be ok too that is my understanding but i’m sure it’s arguable
Thanks a lot florinpop…I appreciate your input!
Schweser, LOS 61a Recovery: cyclicals, commodities, and commodity-linked equities. Early expansion: stocks in general and real estate. Late expansion: bonds and interest-sensitive stocks. Slowing, entering recession: bonds and interest-sensitive stocks Recession: commodities and stocks.