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Portfolios 409: Bond Basics: Overview

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1.
When interest rates fall, what do bond prices do?
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Rise
2.
The higher a bond's duration, _______ it responds to changes in interest rates.
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The more. Duration measures a bond's sensitivity to changes in interest rates.
3.
Evaluations of a firm's ability to pay its debts are expressed through _______.
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Credit ratings. Credit ratings range from AAA down to D and provide information about a firm's ability to pay its debts.
4.
What does duration measure?
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A bond's sensitivity to interest rates. The higher a bond's duration, the more it responds to changes in interest rates.
5.
Why are corporate bonds riskier than government bonds?
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They carry a higher risk of default. Because they are issued by companies rather than governments, they have a higher risk of default. A government has a very low risk of default.