Suppose that you own a bond that matures in one year, and promises to pay you $1,000 at that time. The current one-year interest rate in the economy is 6 percent.
a. What is the price that someone would pay for your bond?
b. Suppose that in the next few days, you expect the Fed to raise its federal funds rate target, which will cause the interest rate on one-year bonds like yours to rise to 8 percent. What is the price that you expect someone would pay for your bond after the Fed acts?
c. If you have confidence in your expectation, which of the following will you want to do now (before the Fed acts): (1) acquire more bonds like the one you have; (2) sell your bond now; (3) neither? Explain briefly.

d. If most other people develop the same expectations about the Fed that you have, what will likely happen to the money demand curve now (before the Fed acts)?