This seems to be a common practice at the government agency I contract for. What’s the point? If they can intercept your encrypted data, can’t they intercept the password too? Shouldn’t the password be sent by a completely separate channel? Phone call, phone text, hard copy, fax?
It depends on where they are doing the interception. E-mails don’t always follow the same path across the internet, even when they start from the same place and have the same destination.
None of the above. You should send them your public key for an agreed-upon asymmetric encryption algorithm. They should send out the document encrypted by a symmetric encryption algorithm as well as the decryption key padded with random bits and then encrypted with your public key. You can then decrypt the document’s key using your private key, strip off the pad bits and then decrypt the document.
They might want to send you the encrypted key in a separate email if there are multiple recipients of the original document. That way they can encrypt the document once and send it out BCCed to all recipients and then send each encrypted key to their respective recipient.