Bond basics
What is a bond?
A loan made by an investor to a government or company
What type of bond is issued by a national government?
Government bond.
What is one benefit of investing in bonds?
Stable income or lower risk.
What usually happens to bond prices when interest rates rise?
Bond prices fall
What does “maturity date” mean?
The date the bond issuer repays the principal.
What do bondholders receive regularly from most bonds?
Interest payments.
What type of bond is issued by companies?
Corporate bond.
What is one downside of bonds compared to stocks?
Lower long-term returns.
What usually happens to bond prices when interest rates fall?
Bond prices rise
What is the original amount invested in a bond called?
Principal
What happens when a bond reaches maturity?
The investor gets back the original amount invested (principal).
Which bonds are usually considered lower risk: government or corporate?
Government bonds
What risk causes bond prices to fall when rates rise?
Interest rate risk.
What is the fixed payment a bond investor receives called?
Coupon payment
What does diversification mean?
Spreading investments to reduce risk
Which is generally considered safer: bonds or stocks?
Bonds
What is a bond ETF?
A fund that holds many bonds and trades like a stock.
What economic factor can reduce the purchasing power of bond returns?
Inflation
What does “yield” mean in bond investing?
The return earned on a bond
What investment mix commonly includes both stocks and bonds?
A balanced portfolio
What is the main purpose of bonds in a portfolio?
To provide stability and reduce risk.
What type of bond usually has higher returns but higher risk?
Corporate bonds.
What is it called when a company cannot repay its bondholders?
Default
Why might investors prefer new bonds when interest rates increase?
New bonds pay higher interest rates
Why do many beginners choose bond ETFs instead of individual bonds?
They are diversified and easier to manage