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1.
The horizontal axis of Morningstar's fixed-income style box measures a fund's ______.
Interest-rate sensitivity. It measures interest-rate sensitivity as measured by the average duration of all the bonds in its portfolio.
2.
The vertical axis of Morningstar's style box measures a fund's _______.
Credit quality. It is broken into three groups: high, medium, and low.
3.
According to Morningstar, which bond fund would be the best choice?
Fund C with an expense ratio of 0.5%, a duration of seven years, and an average credit quality of AA. First of all, Fund C is the lowest costing of the group, and cost is the most important factor when evaluating bond funds. Next, its duration is lower than Fund A's, so it's not taking on as much interest-rate risk as Fund A is.
4.
Which is least important when evaluating bond funds?
Their yields. Yield is nothing more than a percentage of principal, so it's more important to examine a fund's total return than its yield. Further, expenses are perhaps the most important factor to consider when investing in bond funds.
5.
Morningstar's fixed-income style box visually depicts a fund's _______.
Credit quality and duration. While examining total return and expenses is important, our style boxes show the characteristics of the securities that funds own--in this case, duration and credit quality.
