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Funds 406: Using Quirky Bond Funds

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1.
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.
2.
Why might high-yield bond funds suffer greatly in an economic slowdown?
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Their issuers might not be able to pay interest or principal. The bonds these funds own pay high yields because there is risk that the companies backing them won't be able to meet their obligations. Such defaults are most likely to crop up in a tougher economic environment.
3.
Bank loan funds have high _______ risk.
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Credit. Because the loans come from lower-quality borrowers, the credit risk is elevated.
4.
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.
5.
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.