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Bonds 201: Junk Bonds

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1.
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.
2.
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.
3.
Bonds with the highest grade are rated _______.
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AAA. Bonds least likely to default are graded "AAA."
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.