Understanding Bonds and Interest Rates

What is a bond in the context of finance?

• A type of stock

• A form of currency

• A loan to a corporation or government

• A savings account

How do bond prices typically react when interest rates increase?

• Bond prices increase

• Bond prices decrease

• Bond prices remain unchanged

• Bond prices become volatile

Why might a bond paying 5% interest become less attractive if new bonds offer 6%?

• The bond's price would increase

• The bond's price would decrease

• The bond would mature faster

• The bond would pay more interest

What does 'yield to maturity' refer to?

• The interest rate of a bond

• The price of a bond

• The total return expected if a bond is held until it matures

• The duration of a bond

How do central banks like the Federal Reserve influence interest rates?

• By buying stocks

• By adjusting rates to manage the economy

• By printing more money

• By issuing more bonds