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Bonds 201: Junk Bonds

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1.
The debt-to-equity ratio measures a company's debt compared to its _______.
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Stock value. The debt-to-equity ratio is the ratio between a company's debt and its stock value.
2.
Junk bonds are less affected by interest rate changes than other bonds because they tend to have longer maturities.
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False. Junk bonds are less affected by interest rate changes than other bonds because they tend to have shorter maturities.
3.
Low bond liquidity can lead to lower transaction costs.
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False. Low bond liquidity leads to higher trading costs.
4.
Interest rates tend to be less important than company earnings to the price of a junk bond.
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True. Junk bond prices tend to be more affected by company revenues than interest rates.
5.
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.