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1.
Why do high-yield bonds offer such high income?
They have high credit risk. These bonds offer high yields to compensate for the fact that they are big credit risks.
2.
Why might high-yield bond funds suffer greatly in an economic slowdown?
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.
3.
Bank loan funds have high _______ risk.
Credit. Because the loans come from lower-quality borrowers, the credit risk is elevated.
4.
When shopping for a junk-bond fund, credit quality is the feature you should be concerned with.
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.
5.
Treasury inflation-protected securities are issued by _______.
The U.S. government. Because they are issued by Uncle Sam, they are considered very safe.
