finance economic

1. What are the key features of a bond? What is interest rate risk?

2. Which bond has more interest rate risk, an annual payment 1-year bond or a 10-year bond? Why?

3. Discuss and compare the passive bond management and active bond management.



Solution Preview

Finance Economic
Question One
There are several traits of bonds. Some of the main features include the par value aspect of the bond, the coupon of the bond, and the maturity date. The par value of the bond refers to the amount of money that the bondholder will receive upon its maturity. The coupon is the rate at which interest rate will be paid to the bondholders by the bond issuer. The maturity date refers to the date when the bondholder will receive the principal amount from the issuer of the bond.

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