Adamsâ€™s research report (see the previous problem) continued as follows: â€œWith a business expansion already underway, the expected profit surge should lead to a much higher price for Universal Auto stock. We strongly recommend purchase.â€
Â 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.)
Â b. Assuming Adamsâ€™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.