(a) Michael has HK$500,000 and he would like to invest in bond. He is searching for relevant information in the internet. What are the most important characteristics of a bond that he should consider when he makes the purchase? (7 marks)

(b) The old CEO of Michael Bank resigned and a new CEO has joined. You are the advisor to this commercial bank. Your CEO would like to modify the capital structure by reducing the proportion of the shareholder equity. Explain to him what the pros and cons are for maintaining a small amount of shareholder equity. (8 marks)