Question 1: What is a discount bond? What will happen to the price of a discount bond as it approaches maturity?
Question 2: Given TWO (2) identical bonds with the same coupon rate but different maturity dates, the bond with a longer maturity date is said to be more risky than the bond with a shorter maturity date. Why?
Question 3: A bond is called a discount bond when the selling price is lower than its par value. Theoretically, why do discount bonds exist?
Question 4: An increase in interest rate will result in a fall in bond prices. But the price change experienced by a bond with low coupon rate will be much more than that of a bond with high coupon rate. Why is this so?