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Funds 406: Using Quirky Bond Funds

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1.
Why do high-yield bonds offer such high income?
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They have high credit risk. These bonds offer high yields to compensate for the fact that they are big credit risks.
2.
How do Treasury inflation-protected securities protect against inflation?
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By adjusting the principal value as needed. TIPS will raise the principal in order to keep up with inflation. Since the interest rate remains the same, the actual amount paid will rise.
3.
Treasury inflation-protected securities keep up with inflation by raising their interest rates as needed.
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False. They raise their principal amounts, not their interest rates. Since the interest rates remain the same, the actual amount paid to investors will rise.
4.
When shopping for a junk-bond fund, credit quality is the feature you should be concerned with.
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True. Credit risk is the big risk with these funds, so an investor should be most concerned with the credit quality of the underlying bonds.
5.
How do bank loan funds' fees compare to the fees of the average bond fund?
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They are higher. Compared to the average bond fund, their fees are higher.