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Bonds 101: Bond Market Interest Rates

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1.
When bond prices fall, bond yields _______.
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Rise. When bond prices fall, bond yields rise.
2.
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.
3.
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.
4.
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.
5.
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.
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