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Bonds 101: Bond Market Interest Rates

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1.
The higher a bond's duration, the lower its price risk.
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False. The higher a bond's duration, the higher its price risk.
2.
Changing interest rates affect bonds with different maturities to the same degree.
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False. Changing interest rates affect bonds with varying maturities differently.
3.
The lower a bond's credit risk, the higher its yield.
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False. The lower a bond's credit risk, the lower its yield. Low-risk bonds generally pay less interest than those that carry higher risk.
4.
When an investor has to sell his or her bond at a discount, it usually means _______.
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Interest rates have risen. The investor must do this to attract buyers, who can get higher rates elsewhere.
5.
If investors expect interest rates to rise for an extended period, the bond market is bullish.
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False. If investors expect interest rates to rise for an extended period, the bond market is bearish because bond prices will fall, indicating a disinterest in bonds.