1. Explain why as the bond gets closer to maturity the market price approaches the par value.
2. Suppose there are many types of used cars each type with differing level of quality and each type is equally likely to be sold in the marketplace. Only sellers know the true quality of cars. Best quality should bring 200,000, AED and worst quality should bring 100,000 AED in price. If buyers cannot distinguish between good cars and bad cars, explain how bad cars will drive out the good ones. What will happen to the average quality and price of the cars sold in the marketplace? Explain in the extreme case why the only cars left in the market will be the worst cars.