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Portfolios 409: Bond Basics: Overview

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1.
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.
2.
When interest rates fall, what do bond prices do?
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Rise
3.
When you buy a bond, you are _______.
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Lending money to a company or government. When you buy a stock you are buying ownership in a company. And how much risk you're taking on with a bond depends on its credit quality.
4.
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.
5.
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.