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1) Describe the nature of a bond
1) Describe the nature of a bond. Include at least the following ideas. term/maturity face value
debt vs. equity "buying" a bond
non-amortized one borrower/many lenders risk conflict with stockholders
- What is a call provision? Why do companies put them in bonds? Define: call-protected period and call premium/penalty
- Two interest rates are associated with pricing a bond. Name and describe each. How are they used? Describe a third rate not used in pricing.
- What is the relationship between bond prices and interest rates? Verbally describe how this relationship comes about. How can we use this relationship to estimate the value of a bond?
- What is interest rate or price risk? Why is it sometimes called maturity risk? Explain fully.
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