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Bonds 101: Bond Market Interest Rates

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1.
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.
2.
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.
3.
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.
4.
Stock and bond values sometimes change in opposite directions.
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True. This can be the result of trends in the financial health of companies.
5.
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.