Part 1 1. Imagine that people in Switzerland decide to decrease their savings rate permanently. Give predictions (relying on the demandsupply analysis) of what will happen to the Swiss bond market in the future. Should Switzerland expect lower or higher domestic interest rates? (10 points) Note: Figure of demand-supply analysis is required. 2. During the coronavirus pandemic in 2020, the budget decit for most euro-area Member States increased dramatically, yet interest rates in euro-area debt fell sharply and stayed low. Does this make sense? Why or why not? (10 points) Note: Figure of demand-supply analysis is required. 3. You are considering investing some of your wealth in one of three investment portfolios: Stock, Bond, Commodities. Suppose you visit with a nancial adviser, and you are considering investing some of your wealth in one of three investment portfolios. Your nancial adviser provides you with the following table, which gives the probabilities of possible returns from each investment Table 1: Stocks Bonds Commodities Probability Return Probability Return Probability Return ___Ii_ 10% 0.4 7.5% 0.25 8% 0.25 0.25 6% 0.25 4% | 0.05 0% | (1) Which of 3 investment should you choose to maximize your expected return: stocks, bonds, or commodities? (5 points) (2) If you are risk-lover and have to choose between the stock and the bond investments, which should you choose? Why?? (5 points) (3) If you are risk-averse and have to choose between the stock and the bond investments, which should you choose? Why?? (5 points)