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Funds 406: Using Quirky Bond Funds

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1.
When shopping for a junk-bond fund, credit quality is the feature you should be concerned with.
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True. Credit risk is the big risk with these funds, so an investor should be most concerned with the credit quality of the underlying bonds.
2.
How do bank loan funds' fees compare to the fees of the average bond fund?
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They are higher. Compared to the average bond fund, their fees are higher.
3.
Why might high-yield bond funds suffer greatly in an economic slowdown?
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Their issuers might not be able to pay interest or principal. The bonds these funds own pay high yields because there is risk that the companies backing them won't be able to meet their obligations. Such defaults are most likely to crop up in a tougher economic environment.
4.
Why do bank loan funds have high credit risk?
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The loans in the funds are from low-quality companies. Low-quality companies typically carry high risk of default.
5.
Treasury inflation-protected securities keep up with inflation by raising their interest rates as needed.
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False. They raise their principal amounts, not their interest rates. Since the interest rates remain the same, the actual amount paid to investors will rise.