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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.
Low bond liquidity can lead to lower transaction costs.
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False. Low bond liquidity leads to higher trading costs.
3.
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.
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.