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Bonds 201: Junk Bonds

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1.
When inflation is high, bond prices _______.
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Decrease. When inflation goes up, bond prices decrease to be more attractive to buyers.
2.
Default loss rates measure the change in a bond's _______ due to a default.
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Price. Default loss rates measure the impact of a default on a bond's price.
3.
The maturity date is the date when a bond is purchased.
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False. The maturity date is the date the bond must be paid.
4.
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.
5.
In general, when interest rates _______, bond prices _______.
Choose wisely. There is only one correct answer.
Go down/increase. Bondholders can increase the prices of their bonds when interest rates fall, because their bonds will still have higher rates and will therefore be in demand.