1- What economic conditions would prompt investors to take advantage of a bond's convertibility feature?

2- Explain why bond prices and interest rates are negatively related. What are the roles of the coupon rate and the term to maturity in this relation?

3- a. Investor A holds a 10-year bond, while investor B holds an 8-year bond. If the interest rate increases by 1 percent, which investor has the higher interest rate risk? Explain.

• b. Investor A holds a 10-year bond paying 8 percent a year, while investor B also has a 10-year bond that pays a 6 percent coupon. Which investor has the higher interest rate risk? Explain.