2.) If you believe the economy is about to come out of a recession and hits a growth period, you might change your asset allocation by selling _______ and buying ______.

a. defensive stocks; cyclical stocks

b. growth stocks; long-term bonds

c. risky stocks; short-term bonds

d. risky stocks; certificates of deposit

3.) What is true about the correlation of GDP vs Stocks/Bonds?

a. GDP Growth and Equity Performance are negatively correlated

b. GDP is postively correlated to both Stock Returns and Bond Yields

c. GDP is positively correlated to both Stock Returns and Bond Returns

d. GDP has a negative correlation to Bond Yields

4.) For each pair of firms, choose the one that you think would be more sensitive to the business cycle.

Required:

a. General Autos or General Pharmaceuticals?

-General Autos

-General Pharmaceuticals

b. Friendly Airlines or Happy Cinemas?

-Happy Cinemas

-Friendly Airlines