P9.2 Listed below are data that pertain to the corporate bond market. (Note: Each "period" below covers a span of 6 months.) Period 1 Period 2 Period 3 Period 4 Average yield on 10 high-grade 5.30% 5.70% 5.10% corporate bonds Yield on the Dow Jones average of 6.50% 6.00% 4.90% 40 corporate bonds Yield spread (in basis points) 155 25 Confidence index

a. Compute the confidence index for each of the four periods listed above.

b. Assume the latest confidence index (for period 0, in effect) amounts to 86.83%, while the yield spread between high- and average-grade corporate bonds is 85 basis points. Based on your calculations, what's happening to bond yield spreads and the confidence index over the period of time covered in the problem (i.e., from period 0 through period 4)?

c. Based on the confidence index measures you computed, what would be your overall assessment of the stock market? In which one or more of the periods (1 through 4) is the confidence index bullish? In which one(s) is it bearish?