1. What is different about interest rates, or the price of credit, from other prices in the economy?

2. What exactly is a basis point? Why is it an important interest-rate measure?

3. Please explain why debt security prices, such as the prices attached to bonds, and interest rates are inversely related.

4. John is interested in purchasing a new 20-year bond carrying a 10 percent coupon rate. The bonds current market price is $875 for a $1,000 par value instrument. If the investor buys the bond at the going price and holds to maturity, what will be his yield to maturity?

5. You have just placed $1,500 in a bank savings deposit and plan to hold that deposit for eight years, earning 5.5 percent per annum. If the bank compounds interest daily, what will be the total value of the deposit in eight years? How does your answer change if the bank switches to monthly compounding? Quarterly compounding?