The Economy Is Slowing and Many Forecasters Predict a Recession

question 42

Multiple Choice

The economy is slowing and many forecasters predict a recession.You expect the monetary authorities to relax monetary policy which will cause interest rates to fall.You expect the yield on the Walt Disney 10-year bond to fall from 5% to 4%.The bond has a face value of $1,000,and a coupon of 3.25%.If you want to make $5,000 by investing in bonds to profit from the interest rate change,what position do you take?

• A) Buy 67 bonds
• B) Buy 81 bonds
• C) Buy 48 bonds
• D) Short sell 55 bonds
• E) Short sell 92 bonds

---

Definitions:

Consumer Price Index

A gauge that tracks the average variation over time in the prices urban consumers pay for a collection of consumer goods and services.

Producer Price Index

An economic indicator representing the average change over time in the selling prices received by domestic producers for their output.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to track changes in living costs.

Consumer Price Index

A measure that determines the average movement over time in the pricing urban shoppers pay for a selected assortment of consumer goods and services.