1. What is the three-step approach for security valuation and how does it apply to bond pricing?
2. How does the length of time until maturity for a bond impact the relationship between market rates of interest and bond prices? Explain.
3. Which is more sensitive to a change in interest rates, a zero-coupon bond or a 10% coupon bond? Why might this be?
4. Would you ever pay more than $1,000 to buy a $1,000 non-convertible zero-coupon bond? Explain.