Answering the following question

1. As you read the business news, you come across an advertisement for a bond mutual fund—a fund that pools the investments from a large number of people and then purchases bonds, giving the individuals “shares” in the fund. The company claims its fund has had a return of 13½ percent over the last year. But you remember that interest rates have been pretty low—5 percent at most. A quick check of the numbers in the business section you’re holding tells you that your recollection is correct. Explain the logic behind the mutual fund’s claim in the advertisement.

2. Given the data in the accompanying table, would you say that this economy is heading for a boom or for a recession? Explain your choice.

	3-Month Treasury Bill	10-Year Treasury Bond	Baa Corporate 10-Year Bon
January	1%	3%	7%
February	1.05	3.5	7.2
March	1.10	4.0	7.5
April	1.20	4.3	7.7
May	1.25	4.5	7.8

3. What are the advantages of holding stock in a company versus holding bonds issued by the same company?