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Bonds 101: Bond Market Interest Rates

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1.
When interest rates fall, bond prices _______.
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Rise. Because rates on existing bonds may be higher than bonds issued with the lowered rates, owners of existing bonds can sell theirs for a profit.
2.
When interest rates fall, assuming an equal amount for all bond maturities, bonds with short maturities will have _______.
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Smaller premiums than bonds with longer maturities. Short maturities mean small discounts.
3.
When interest rates fall, bond investors can potentially make a profit by _______.
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Selling bonds. If their bonds pay a higher interest rate than newly issued bonds would, the investors could find their bonds in great demand and thus sell them for a profit.
4.
Stock and bond values sometimes change in opposite directions.
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True. This can be the result of trends in the financial health of companies.
5.
If interest rates rise 2 percent and a bond's duration is 10 years, you can expect _______.
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The bond's price to fall 20 percent. If interest rates rise 2 percent and a bond's duration is 10 years, you can expect the bond's price to fall 20 percent.