1. Explain how a bond can be classified as a fixed-income security when the yield to maturity can fluctuate significantly over time, depending on the market price of the bond.
2. Describe the basic features of each of the following types of bonds:
a. Floating rate bonds
b. Original issue deep discount bonds
c. Zero coupon bonds
d. Extendable notes (put bonds)
3. Explain what is meant by reinvestment rate risk.
4. Compare the debt outstanding for AMR (parent of American Airlines) and Southwest Airlines. Use the S&P Bond Guide from your library to determine the bond rating of each of these firms. What reasons can you cite for the differences in bond ratings between the firms?