By 2012, actions by the Federal Reserve and other central banks had driven shortterm interest rates close to zero. One portfolio manager was quoted as saying: “The market has heard … central bankers and has responded accordingly.”

a. In what ways did individual investors respond to very low short-term interest rates?

b. If you owned a portfolio of long-term bonds in 2007, before the beginning of the financial crisis, would the return on your portfolio have been helped or hurt by the fall in interest rates? Briefly explain.

c. If you were a new investor who was just beginning to build an investment portfolio, would your investment opportunities have been helped or hurt by the decline in interest rates?

Briefly explain.