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Portfolios 409: Bond Basics: Overview

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1.
High-yield bonds will do poorly when _______.
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There's a recession. Lower-rated high-yield bonds will do poorly during a recession, as issuers will have a tougher time meeting their high debt payments.
2.
A bond lasts a certain length of time, after which it reaches its what?
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Maturity. A bond's maturity is the date when it needs to be repaid.
3.
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.
4.
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.
5.
Which of the following bond funds is taking on the most credit risk?
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The fund with a five-year duration and an average credit quality of B. Credit quality is the indicator of credit risk. A fund with an average credit quality of B is taking on more credit risk than one with investment-grade quality such as A or AAA.