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Portfolios 409: Bond Basics: Overview

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1.
When interest rates fall, what do bond prices do?
Choose wisely. There is only one correct answer.
Rise
2.
Why are corporate bonds riskier than government bonds?
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They carry a higher risk of default. Because they are issued by companies rather than governments, they have a higher risk of default. A government has a very low risk of default.
3.
The higher a bond's duration, _______ it responds to changes in interest rates.
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The more. Duration measures a bond's sensitivity to changes in interest rates.
4.
When you buy a bond, you are _______.
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Lending money to a company or government. When you buy a stock you are buying ownership in a company. And how much risk you're taking on with a bond depends on its credit quality.
5.
High-yield bonds will do poorly when _______.
Choose wisely. There is only one correct answer.
There's a recession. Lower-rated high-yield bonds will do poorly during a recession, as issuers will have a tougher time meeting their high debt payments.