1. How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable risk the only relevant risk?

2. A $1,000 10-year bond is currently trading at $1,200 because its required rate of return is lower than its coupon rate. Describe what would happen to the bonds value over time as the bond moves toward maturity given that the required rate of return on the bond will remain at the current level until maturity.

3. Outline the main differences between preferred stock and common stock.