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Bonds 101: Bond Market Interest Rates

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1.
When interest rates fall, bond prices _______.
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Rise. Because rates on existing bonds may be higher than bonds issued with the lowered rates, owners of existing bonds can sell theirs for a profit.
2.
When interest rates fall, bond investors can potentially make a profit by _______.
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Selling bonds. If their bonds pay a higher interest rate than newly issued bonds would, the investors could find their bonds in great demand and thus sell them for a profit.
3.
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.
4.
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.
5.
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.