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1.
Why do high-yield bonds offer such high income?
They have high credit risk. These bonds offer high yields to compensate for the fact that they are big credit risks.
2.
Why do bank loan funds have high credit risk?
The loans in the funds are from low-quality companies. Low-quality companies typically carry high risk of default.
3.
Treasury inflation-protected securities are issued by _______.
The U.S. government. Because they are issued by Uncle Sam, they are considered very safe.
4.
Treasury inflation-protected securities keep up with inflation by raising their interest rates as needed.
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.
5.
Bank loan funds have high _______ risk.
Credit. Because the loans come from lower-quality borrowers, the credit risk is elevated.
