The first step in the top-down approach to investing is assessing the state of the overall...

The first step in the top-down approach to investing is assessing the state of the overall economy. Assume the following data for a hypothetical economy.

Item	2 quarters ago	Previous quarter	Current quarter
New Filings for unemployment benefit	5,000	40,000	80,000
Stock market index	1500	1200	1000
Industrial Capacity utilization	60%	50%	40%
Change in Factory Orders for machinery and equipment	5%	-12%	-20%

a) Determine in what stage the economy is in the business cycle. Explain your answer.

b) Give an example of an industry that is good for investment at this stage of the business cycle. Why?

Solutions

Expert Solution

The industry has been in the business cycle 2 quarters ago when the employment level was sufficient and the industries were producing at higher capacity of 60% as compared to the present scenario of 40% utilization. Other factors signifying the same are the Stock Market Performance and Change in Factory Orders for machinery and equipment. The market was in bull state2 quarters ago and the chnange in factor orders was a positive increase of 5%.
It looks like the situation of a recession where unemployment is increasing and the production is also down. In this situation, the only industry that will perform for sure is the FMCG or the Fast Moving Consumer Goods Industry. No matter if there is infkation or recession, people will definitely buy the essential goods. Thefore, the investment can be made accordingly.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

(a) Explain, using examples, the difference between a ‘top-down’ approach and a ‘bottom-up’ approach to equity...

(a) Explain, using examples, the difference between a ‘top-down’ approach and a ‘bottom-up’ approach to equity valuation. (b) There are four principles that underlie the concept of efficient markets. Outline, using examples, each principle. (c) Write out the formula for the constant growth dividend valuation model. What key assumptions are required? (d) You are interested in buying a share that paid its last annual dividend 9 months ago. You can assume that the next dividend payment (3 months from today)...

What is the biggest mistake many organizations make in the top-down approach

Explain, using examples, the difference between a ‘top-down’ approach and a ‘bottom-up’ approach to equity valuation....

Explain, using examples, the difference between a ‘top-down’ approach and a ‘bottom-up’ approach to equity valuation. b) There are four principles that underlie the concept of efficient markets. Outline, using examples, each principle. c) You are considering investing in a project whose cash flows are given below: dISCOUNT RATE 5% Year 0 -800 1 200 2 250 3 -200 4 300 5 450 i. Calculate the present value (PV) of the future cash flows of the project ii. Calculate the...

Suggest at least one approach to assessing health risks for individuals in your state to address...

Suggest at least one approach to assessing health risks for individuals in your state to address a significant disparity. How might prevention strategies and approaches based on race and ethnicity improve or hinder accurate risk assessment?

Indexing is most closely associated with... a) top-down investing. b) bottom-up investing. c) active management. d)...

Indexing is most closely associated with... a) top-down investing. b) bottom-up investing. c) active management. d) passive management.

You should be aware of companies who operate a ‘top down’ approach to budgeting and companies...

You should be aware of companies who operate a ‘top down’ approach to budgeting and companies who involve members of staff at all levels in the budget preparation process. Discuss TWO advantages and TWO disadvantages to a company that adopts the latter process.

1-What are some advantages and disadvantages of top - down versus bottom - up investing styles?...

1-What are some advantages and disadvantages of top - down versus bottom - up investing styles? 2- Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems , that is , potential conflicts of interest between managers and shareholders . a . A fixed salary . b . Stock in the firm . c . Call options on shares of the firm .

Photolithograph or e-beam lithography is known as a top-down approach to nanostructures while chemical synthesis is...

Photolithograph or e-beam lithography is known as a top-down approach to nanostructures while chemical synthesis is known as a bottom-up approach to nanostructures. Compare the advantages and disadvantages of these two different approaches in terms of a. cost, b. capital investment, c. control, d. precision, e. volume of production, and f. diversity of materials.

QUESTION 11 A financial analyst is comparing two companies using a top-down approach. Which of the...

QUESTION 11 A financial analyst is comparing two companies using a top-down approach. Which of the following would cause the biggest problem in the evaluation process? One company's financial year-end is 31 October, while the other company's financial year-end is 31 December. The companies operate in different industries. One company has been in business significantly longer than the other company. Inflation has been low for several years QUESTION 9 Selected data from the financial statements of Ned Kelly (NK) are...

The top-down approach is/can be the most effective way to implement change in any organization. I...

The top-down approach is/can be the most effective way to implement change in any organization. I say can be because the management team has to be right because with the wrong managers in place then the change that the organization is trying to go through will be far more difficult to handle. If the senior managers do not feel that they can rely on some of the lower management, do you think they could experiment with a variation of the...

Subjects