Subject: Business / Finance
1. Explain the following statement: The potential return on any investment should be directly related to the risk the investor assumes.
2. Assume that you are choosing an investment for your retired parents. Would you choose a bond issued by the federal government, a state or local government, or a corporation? Justify your answer.
3. In what circumstances would a $1,000 corporate bond be worth more than $1,000? In what circumstances would the corporate bond be worth less than $1,000? Explain the relationship between interest rates and bond prices and give an example.
4. You are considering two different corporate bonds. One is rated AAA by Standard & Poor’s and pays 5.8 percent annual interest. The other bond is rated B by Standard & Poor’s and pays 7.5 percent annual interest. What do these ratings mean? Which bond would you choose and why?
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