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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.
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.
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.
4.
The amount of fixed interest a bond pays each year until it matures is called its _______.
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Coupon rate. Premiums and discounts are not interest rates.
5.
When interest rates fall, assuming an equal amount for all bond maturities, bonds with short maturities will have _______.
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Smaller premiums than bonds with longer maturities. Short maturities mean small discounts.