Please answer all of the questions!
1. Briefly explain the cash inflows and outflows over the life of a bond from purchase until maturity from the investor’s perspective.
2. What is the difference between the face value and the par value of a bond? Does the investor get this amount back, and if so, at what time?
3. Fill in the blanks of the following sentence. (Hint: For the first blank, choose a different answer than “future” even though “future” is technically correct): The bond price gets closer to the _______ value as the life of the bond _______.
4. Assuming equal face value and coupon payments, would an investor rather have an investment grade bond or a junk bond? Why?