What are the correct answers for each question? (Multiple choice)

A) Suppose that changing money market conditions result in an interest rate higher than the equilibrium rate then:

1 - portfolio mangers will neither buy nor sell bonds sell bonds and thus maintain the mix of money balances and bonds in their portfolios.

2 - portfolio managers will buy bonds and thus reduce the money balances in their portfolios.

3 - portfolio managers will sell bonds and thus increase the money balances in their portfolios.

4 - portfolio managers will sell bonds and thus reduce the money balances in their portfolios.

B) If portfolio managers and private individuals expect market interest rates will fall in the near future they will:

	1 - move quickly to buy bonds and shift portfolios from money to bonds before interest rates fall.
	2- do nothing because the coupon payments and yields on bonds they hold will not change with a change in current market interest rates.
	3 - congratulate themselves on their wisdom in currently holding bonds in their portfolios.
	4- move quickly and sell bonds to shift portfolios from bonds to money before interest rates fall.

C) Holding your wealth in a portfolio made up of both bonds and money provides:

	1 - reduced bank fees and higher interest income.
	2 - reduced risk of capital loss in return for lower interest income.
	3 - no benefits in terms of either interest income or lower risk.
	4 - an increase in interest income at the cost of lower risk.