Investing Basics: Bonds

All of the following are true about bonds EXCEPT…

• • Bonds are considered a riskier investment option than stocks.

• • A bond is a loan given to a company or government by an investor who receives interest in return.

• • Companies and governments issue bonds to fund new projects or ongoing expenses.

• • Bonds are a way for investors to diversify their portfolios and generate additional income.

By the end of a bond's maturity, the investor will have received…

• • Only the face value of the issued bond

• • The face value of the bond issued and interest payments

• • Only interest payments

• • Half the face value of the issued bond and interest payments

What is default risk?

• • The risk that the investor is not able to pay the face value of the bond.

• • The risk that the company or government is not able to make interest payments.

• • The risk that the investor demands the face value of the bond before the bond fully matures. 

• • The risk that the company or government is unable to pay back the investor.

You've decided you want to sell a bond before its maturity date. Interest rates are currently higher than when you bought the bond. What will you likely have to do to make your bond more appealing to investors?

• • Lower the interest rate

• • Sell your bond at a discounted price 

• • Increase the interest rate 

• • Sell your bond at a higher price