Prompt. You are an economic advisor to General Electric (GE), a multinational corporation best known for its work in the power, renewable energy, aviation, and healthcare industries. Currently, GE owns very large quantities of long-term U.S. Treasury bonds and long-term AAA-rated corporate bonds. You confer daily with the firms senior vice president and chief financial officer, Carolina Dybeck Happe.

Today, Ms. Dybeck Happe asks you to assess how each of the following announcements will affect current prices and yields to maturity of various types of bonds. In your response to each announcement Ms. Dybeck Happe presents you, please carefully defend your reasoning: specifically, explain how the announcement affects current movements of and along the demand and supply curves for the types of bond(s) in question. For simplicity, assume the supply curve of each type of bond is vertical and, thus, the quantity supplied of each type of bond is insensitive to movements in its price.

Announcement 2. Later this morning, Ms. Dybeck Happe will appear on CNBC, where she will announce that, in her expert opinion, long-term AAA-rated corporate bonds are far less liquid than most holders of these bonds realize. Ms. Dybeck Happes expert opinion would move financial markets. Ms. Dybeck Happe asks you to assess how her announcement this morning will affect todays prices and yields to maturity of long-term U.S. Treasury bonds.