solution

Adams’s research report (see the previous problem) continued as follows: “With a business expansion already underway, the expected profit surge should lead to a much higher price for Universal Auto stock. We strongly recommend purchase.”

 a. Discuss the business cycle approach to investment timing. (Your answer should describe actions to be taken on both stocks and bonds at different points over a typical business cycle.)

 b. Assuming Adams’s assertion is correct (that a business expansion is already under way), evaluate the timeliness of his recommendation to purchase Universal Auto, a cyclical stock, based on the business cycle approach to investment timing.