1. A bond is a long term promissory note which promises to pay the holder regular cash flows and at expiration the full face value on the face of the bond. From your other classes you would have been told that bonds are long term liabilities which attract a certain interest rates annually. Here we are taking this further and suggesting that the bond, a long term financial instrument, is an asses and can be valued like any other long term cash flow generating asset. Would you agree or disagree? Explain fully and remember to describe concepts as you use them including those underlined in the statement above

2. How does collateral affect the interest rate on a bond? How does subordination affect the interest rate on a bond too? What else might affect the interest rate on a bond?