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1.
When you buy a bond, you are _______.
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.
2.
High-yield bonds will do poorly when _______.
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.
3.
The higher a bond's duration, _______ it responds to changes in interest rates.
The more. Duration measures a bond's sensitivity to changes in interest rates.
4.
What does duration measure?
A bond's sensitivity to interest rates. The higher a bond's duration, the more it responds to changes in interest rates.
5.
Evaluations of a firm's ability to pay its debts are expressed through _______.
Credit ratings. Credit ratings range from AAA down to D and provide information about a firm's ability to pay its debts.
