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Bonds 201: Junk Bonds

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1.
The process of investing in many different types of bonds is called diversification.
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True. Diversification involves choosing securities that involve a wide variety of different aspects, such as risk levels and types of issuers.
2.
Bonds with the highest grade are rated _______.
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AAA. Bonds least likely to default are graded "AAA."
3.
Credit analysis includes researching a company's entire industry.
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True. Looking at other companies in the same industry is part of credit analysis.
4.
The chance a company or government will not pay back a bond is called ______.
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Default risk. Default is the inability to make payments to debtholders.
5.
Junk bonds are less affected by interest rate changes than other bonds because they tend to have longer maturities.
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False. Junk bonds are less affected by interest rate changes than other bonds because they tend to have shorter maturities.