Q1. Institutional Advisors for All Inc., or IAAI, is a consulting firm that primarily advises all types of institutions such as foundations, endowments, pension plans, and insurance companies. IAAI also provides advice to a select group of individual investors with large portfolios. One of the claims the firm makes in its advertising is that IAAI devotes considerable resources to forecasting and determining long-term trends; then, they use commonly accepted investment models to determine how these trends should affect the performance of various investments. The members of the research department of IAAI have recently reached some conclusions concerning some important macroeconomic trends. For instance, they have seen an upward trend in job creation and consumer confidence and predict that this should continue for the next few years. Other domestic leading indicators that the research department at IAAI wishes to consider are industrial production, average weekly hours in manufacturing, S& 500 stock prices, M2 money supply and the index of consumer expectations.

In light of the predictions for job creation and consumer confidence, the investment advisors at IAAI want to make recommendations for their clients. They use established theories that relate job creation and consumer confidence to inflation and interest rates, and then incorporate the forecasted movements in inflation and interest rates into established models for explaining asset prices. Their primary concern is to forecast how the trends in job creation and consumer confidence should affect bond prices and how those trends should affect stock prices.

The members of the research department at IAAI also note that stocks have been trending up in the past year, and this information is factored into the forecasts of the overall economy that they deliver. The researchers consider an upward trending stock market as a positive economic indicator in itself; however, they disagree as to the reason this should be the case.

The researchers at IAAI have forecasted positive trends for both job creation and consumer confidence. Which, if either, of the trends should have a positive affect on stock prices?

          Job creation     Consumer confidence

A) Yes                                              No

B) Yes                                              Yes

C) No                                               No

Q2. The researchers at IAAI have forecasted positive trends for both job creation and consumer confidence. Which, if either, of the trends should have a positive affect on bond prices?

Job creation          Consumer confidence

A) Yes                                              Yes

B) No                                               Yes

C) No                                               No

答案和详解如下：

Q1. Institutional Advisors for All Inc., or IAAI, is a consulting firm that primarily advises all types of institutions such as foundations, endowments, pension plans, and insurance companies. IAAI also provides advice to a select group of individual investors with large portfolios. One of the claims the firm makes in its advertising is that IAAI devotes considerable resources to forecasting and determining long-term trends; then, they use commonly accepted investment models to determine how these trends should affect the performance of various investments. The members of the research department of IAAI have recently reached some conclusions concerning some important macroeconomic trends. For instance, they have seen an upward trend in job creation and consumer confidence and predict that this should continue for the next few years. Other domestic leading indicators that the research department at IAAI wishes to consider are industrial production, average weekly hours in manufacturing, S& 500 stock prices, M2 money supply and the index of consumer expectations.

In light of the predictions for job creation and consumer confidence, the investment advisors at IAAI want to make recommendations for their clients. They use established theories that relate job creation and consumer confidence to inflation and interest rates, and then incorporate the forecasted movements in inflation and interest rates into established models for explaining asset prices. Their primary concern is to forecast how the trends in job creation and consumer confidence should affect bond prices and how those trends should affect stock prices.

The members of the research department at IAAI also note that stocks have been trending up in the past year, and this information is factored into the forecasts of the overall economy that they deliver. The researchers consider an upward trending stock market as a positive economic indicator in itself; however, they disagree as to the reason this should be the case.

The researchers at IAAI have forecasted positive trends for both job creation and consumer confidence. Which, if either, of the trends should have a positive affect on stock prices?

          Job creation     Consumer confidence

A) Yes                                              No

B) Yes                                              Yes

C) No                                               No

Correct answer is B)

Equity prices are positively correlated with job creation or longer work weeks, as each new dollar earned means more money will be spent. High confidence presages well for spending and stock prices.

Q2. The researchers at IAAI have forecasted positive trends for both job creation and consumer confidence. Which, if either, of the trends should have a positive affect on bond prices?

Job creation          Consumer confidence

A) Yes                                              Yes

B) No                                               Yes

C) No                                               No

Correct answer is C)

Bond prices are inversely affected by employment levels. A high level of job creation could be indicative of future inflation and higher interest rates, which depress bond prices. Lower employment implies a weaker economy and the prospect of lower interest rates and higher bond prices. High consumer confidence may lead to increased interest rates and reduced bond prices.