1) The current rate of inflation is 3 percent, and long-term Treasurybonds are yielding 7 percent. You estimate that the rate of inflationwill increase to 6 percent. What do you expect to happen to long-term bond yields? Compute the effect of this estimated change ininflation on the price of a 15- year, 10 percent coupon bond with acurrent yield to maturity of 8 percent
2)Briefly describe the results of studies that examined the performance of alternative industries during specific time periods, and discuss their implications for industry analysis.
3) Briefly describe the results of the studies that examined industry performance over time. Do these results complicate or simplify industry analysis?
Answer1
In the market which are fully anticipates the rise in inflation,
the long bond rate should rise
.As per information given in the sum ,that annual coupons, the 15- price of a 15- year, 10 percent coupon bond with a current yield to maturity of 8 percent
tomaturity will go from a price of $1,171.19 to an 11% yield to maturity and a price of$928.09
Answer 2
the results of studies that examined the performance of alternative industries during specific time periods,
The performance of alternative industries during specific time periods, show that that there are Major difference in absolute or relative performance among industries during any giventime period.
In addition, we can say that the industry performance differences are found in alternative time periods where the time periods may vary in length. Therefore, the investor mustexamine alternative industries after he has forecasted market movements because ofthe wide dispersion of industry performance around the expected market performance
Answer 3
Studies that examined industry performance over time shows that relative industry performance is inconsistent over time.
If we rank the industries over successive time periods, we can find that, there is small correlation in the rankings. And this result holds for different types of markets and for alternative lengthtime periods. All thess finding of the examination show that simple extrapolation of past performance isnot useful by itself. Therefore, the analyst must put additional effort into his industryanalysis by projecting industry performance based upon future expectations ofindustry conditions. In the last we could say that it makes industry analsis more demanding
