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k . Describe a way to estimate the inflation premium ( IP ) for a t - year bond. What is a bond spread and

k. Describe a way to estimate the inflation premium (IP) for a t-year bond.
What is a bond spread and how is it related to the default risk premium? How are bond ratings
related to default risk? What factors affect a company's bond rating?
m. What is interest rate (or price) risk? Which bond has more interest rate risk: an annual
payment 1-year bond or a 10-year bond? Why?
n. What is reinvestment rate risk? Which has more reinvestment rate risk: a 1-year bond or a 10-
year bond?
o. How are interest rate risk and reinvestment rate risk related to the maturity risk premium?
p. What is the term structure of interest rates? What is a yield curve?
q. Briefly describe bankruptcy law. If a firm were to default on its bonds, would the company be
liquidated immediately? Would the bondholders be assured of receiving all of their promised
payments?
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