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Bonds 101: Bond Market Interest Rates

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1.
The longer a bond's maturity, the larger its discount when interest rates rise.
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True. The longer a bond's maturity, the larger its discount when interest rates rise.
2.
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.
3.
Duration is used to predict how much bond prices will change due to fluctuating interest rates.
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True. Duration takes into account the weighted average of a bond's coupon rates, its principal, and the time until the rates are paid.
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.
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.