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Bonds 201: Junk Bonds

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1.
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.
2.
The chance a company or government will not pay back a bond is called ______.
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Default risk. Default is the inability to make payments to debtholders.
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.
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.
Low bond liquidity can lead to lower transaction costs.
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False. Low bond liquidity leads to higher trading costs.