Question

Question: Given the following data on bond yields, is the confidence index rising or falling? What might explain the pattern of yield changes?

	This Year	Last Year
Yield on top rated corporate bonds	8%	8.50%
Yield on Intermediate grade Corporate bonds	10.50%	10%

Short answer

Answer

Confidence index is falling.

Step-by-step solution

Definition and Formulae

Confidence index is an economic indicator to show economic growth in which consumers spend more money.

Formula for finding confidence index = Yield on top rated corporate bonds / Yield on Intermediate grade corporate bonds

Calculation of Confidence Index

Therefore, this year’s confidence index = 8%/10.5% =0.7619

Last year’s confidence index = 8.5% / 10% = 0.85

Form the above calculation; it is evident that the confidence index is decreasing.