Understanding Bonds and Their Risks

The video tutorial explains government bonds as safe investments, highlighting their historical context and how they function as IOUs. It discusses the risks associated with bonds, particularly in the secondary market, using Silicon Valley Bank as a case study. Despite potential risks, government bonds remain a secure investment option compared to stocks.

What is a key characteristic of government bonds that makes them appealing to investors?

• Tax-free income

• Low risk

• Short maturity period

• High returns

How do bonds function in terms of government financing?

• They are a type of government loan

• They are a form of tax

• They are a form of government spending

• They are a government grant

What was the purpose of Liberty Loans during World War I?

• To fund infrastructure projects

• To increase exports

• To support the war effort

• To reduce taxes

What is a savings bond's main feature that contributes to its safety?

• It can be sold anytime

• It is tax-free

• It is backed by the government

• It offers high interest rates

What event could prevent you from getting your money when a savings bond matures?

• A change in interest rates

• A bank failure

• A stock market crash

• A government default

What is a common reason for the U.S. government to issue new bonds?

• To reduce inflation

• To pay back existing bondholders

• To decrease spending

• To increase taxes

What is a potential risk when selling bonds in the secondary market?

• Immediate maturity

• Fixed interest rates

• Variable bond value

• Guaranteed profit

Why might an investor choose to sell a bond before it matures?

• To increase the bond's value

• To avoid taxes

• To access funds sooner

• To extend the bond's maturity

What was a consequence of Silicon Valley Bank selling bonds at a loss?

• Government intervention

• Higher interest rates

• A bank run

• Increased profits

What happens to bond prices when interest rates rise?

• They remain stable

• They become tax-free

• They increase

• They decrease