Valuation

Review the valuation principle and how it helps a financial manager make decisions. In the early 1980s, inflation was in the double digits and the yield curve sloped sharply downward. 

What did this yield curve suggest about the financial manager’s / investor’s expectations about future rates? 

Explain how a downward sloping yield curve affects the prices of existing long-term bonds and stocks trading in the secondary market, assuming this change in the yield curve is the only change that occurs. 

Would you characterize the change in the yield curve as a systematic or unsystematic risk?