The bull market in bonds has persisted for 40 years. In September 1981, the interest rate on 10-year U.S. Treasury bonds was 15.8 percent. In 2020, the interest rate bottomed at 0.52 percent and has moved higher. Whether the bull market ends or continues, it’s important for investors to know bond basics. Test your knowledge of bonds by taking this brief quiz.
1. In general, a bond is:
a. A loan that an investor makes to a company, a government, or another organization
b. An investment that pays a specific amount of interest over a set period of time
c. An investment that is expected to return an investor’s principal at maturity
d. All of the above
2. If interest rates rise, what will typically happen to bond prices?
a. Prices rise
b. Prices fall
c. Prices remain stable
d. There is no relationship between interest rates and bond prices.
3. Bonds are called many different names. Which of the following is not an alternative name for bonds?
a. Fixed income
d. Debt securities
4. The interest rate on floating-rate notes adjusts as rates change. When might it be advantageous to have these bond investments in a portfolio?
a. When interest rates fall
b. When interest rates rise
If you have any questions about the quiz or about bonds and the role they play in your portfolio, give us a call.
WEEKLY FOCUS - THINK ABOUT IT
“Don't think money does everything or you are going to end up doing everything for money.”
Answers: 1) d; 2) b; 3) c: 4) b
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