A. The first key feature of a bond is Par or face value which is generally assumed at $1,000 par value, but par can be anything and often $5,000 or more is used. Whatever amount you purchase a bond for that is the amount on the certificate. The second key feature is the coupon rate the dollar coupon is the “rent” on the money borrowed which is generally the par value of the bond. The coupon rate is the annual interest payment divided by the par value, and it is generally set at the value of r on the day the bond is issued. The third key feature is maturity this is the number of years until the bond matures and the issuer must repay the loan (return on par value). The fourth key feature is the issue date, this is the date the bonds were issued. Finally the fifth key feature is default risk, this is a risk that every bond except treasury bonds have that the issuer cannot pay the money that is promised.

B. A call provision is a provision in a bond contract that gives the issuing corporation the right to redeem the bonds under specified terms prior to the normal maturity date. Which means that if the corporation calls in a bond sooner than the maturity date that they are paid a greater amount than the par value. There is also a call premium that must be paid if called in sooner and that means the amount is equal to one year’s interest the first year and then the amount is reduced after that year is called in later. A sinking fund provision is a bond contract that requires the issuer to retire a portion of the bond issue each year. This makes them more riskier unless it is a sinking provision which is considered safer than a bond without this provision, but there is always a risk that the bond could be called in sooner than the maturity date.

C. The value of an asset is merely the present value of its expected future cash flows. If there is a wide variety of risk