-Refer to Figure 9.3. If the interest rate were i 1 portfolio managers:

When the interest rate is lower than the equilibrium rate, portfolio managers would buy bonds because they anticipate that bond prices will rise (as prices and yields move inversely). This buying activity creates an excess demand for bonds, pushing prices up and yields down.

-Refer to Figure 9.3. If the interest rate were i 1 portfolio managers:

When the interest rate is lower than the equilibrium rate, portfolio managers would buy bonds because they anticipate that bond prices will rise (as prices and yields move inversely). This buying activity creates an excess demand for bonds, pushing prices up and yields down.

Solved

-Refer to Figure 9

Question 79

Multiple Choice

-Refer to Figure 9.3. If the interest rate were i₁ portfolio managers:

A) would buy bonds; as a result, there will be an excess demand for bond leading to higher bond prices and lower yields.
B) would be content with the mix of bonds and money balances in their portfolios.
C) would sell bonds; as a result, there will be an excess supply of bonds leading to lower prices of bonds and higher yields.
D) would spend funds on current financial portfolios.

Correct Answer: