Fixed-Income Funds and Bonds Quiz

What is the primary investment objective of fixed-income funds?

• To achieve high capital gains

• To earn current income while preserving capital

• To invest in high-risk stocks

• To maximize short-term profits

How does the duration of a bond affect its sensitivity to interest rate changes?

• Longer duration decreases sensitivity

• Shorter duration increases sensitivity

• Longer duration increases sensitivity

• Duration has no effect on sensitivity

What happens to the value of a fixed-income security as interest rates fall?

• The value decreases

• The value remains the same

• The value increases

• The value becomes unpredictable

What is another term used for a bond's duration?

• Time-weighted maturity

• Interest rate sensitivity

• Coupon rate

• Investment portfolio

What is the relationship between duration and maturity for bonds, except zero coupon bonds?

• Duration is always greater than maturity.

• Duration is always equal to maturity.

• Duration is always less than maturity.

• Duration is unrelated to maturity.

What is a mutual fund company's policy regarding the minimum duration of its bond fund?

• Maintain a minimum duration of three years.

• Maintain a minimum duration of six years.

• Maintain a minimum duration of ten years.

• Maintain a minimum duration of one year.

What is the primary focus of conservative bond funds?

• High capital gains

• Current income and capital preservation

• High-risk investments

• Short-term profits

Why might corporate bonds offer better yields than government bonds?

• They have lower credit ratings.

• They have higher credit ratings.

• They are risk-free.

• They have shorter durations.

What does Figure 11.5 compare in terms of returns?

• Bond funds to real estate investments

• Bond funds to equity mutual funds

• Bond funds to savings accounts

• Bond funds to commodities

What is the average return for bond funds over the 15-year period mentioned in the document?

• 2%

• 5.31%

• 6.17%

• 3.5%