BOND 3 IS IN THE CYCLICAL INDUSTRY, IT HAS A LOWER DEBT/CAPITAL RATIO AND A TIGHTER SPREAD THAN BOND 2, HENCE SHOULD BE CHOSEN FOR A SHORT POSITION GIVEN THE ECONOMIC OUTLOOK FOR GROWTH

10. C is correct. Bond 3 is in the cyclical industry, it has a lower debt/capital ratio and a tighter

spread than Bond 2, hence should be chosen for a short position given the economic outlook

for growth. Bond 1 & Bond 2 are in the consumer staples (non-cyclical) industry. Higher-

rated issues such as Bond 1 are likely to outperform in the declining growth environment.