Question 1: What are bond's key features?
Question 2: What are call provisions and sinking fun provisions? Do these provisions make funds more or less risky?
Question 3: How is the value of any asset whose value is based on expected future cash flows determined?
Question 4: What is interest rate (or price) risk? Which has more interest rate risk, an annual payment 1-year bond or a 10-year bond? Why?
Question 5: What is reinvestment rate risk? Which has more reinvestment rate risk, a 1-year bond or a 10-year bond?
Question 6: How does the equation for valuing a bond change if semiannual payments are made? Find the value of a 10-year, semiannual payment, 10% coupon bond if nominal rd=13%.
Question 7: Does the yield to maturity represent the promised or expected return on the bond? Explain.
Question 8: These bonds were rated AA-by S&P. Would you consider them investment-grade or junk bonds?
Question 9: What factors determine a company's bond rating?
Question 10: If this firm were to default on the bonds, would the company be immediately liquidated? Would the bond-holders be assured of receiving all of their promised payments? Explain.