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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.
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.
3.
Why do bank loan funds have high credit risk?
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The loans in the funds are from low-quality companies. Low-quality companies typically carry high risk of default.
4.
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.
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.