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Bonds 201: Junk Bonds

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1.
Default loss rates measure the change in a bond's _______ due to a default.
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Price. Default loss rates measure the impact of a default on a bond's price.
2.
Credit analysis includes researching a company's entire industry.
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True. Looking at other companies in the same industry is part of credit analysis.
3.
The process of investing in many different types of bonds is called diversification.
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True. Diversification involves choosing securities that involve a wide variety of different aspects, such as risk levels and types of issuers.
4.
The maturity date is the date when a bond is purchased.
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False. The maturity date is the date the bond must be paid.
5.
In general, when interest rates _______, bond prices _______.
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Go down/increase. Bondholders can increase the prices of their bonds when interest rates fall, because their bonds will still have higher rates and will therefore be in demand.