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Simply Bonds

Simply Bonds. Traded in the SMG. Bond Basics. Bonds are loans Basically an IOU Not traded daily Over 3 Million domestic options Government Municipals Corporate. Terminology. Par Value = Face Value

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Simply Bonds

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  1. Simply Bonds Traded in the SMG www.stockmarketgame.org

  2. Bond Basics • Bonds are loans • Basically an IOU • Not traded daily • Over 3 Million domestic options • Government • Municipals • Corporate www.stockmarketgame.org

  3. Terminology • Par Value = Face Value • Accrued Interest - the interest that has accumulated since the principal investment, or since the previous interest payment. • For all SELL Transactions the SEC Fee of 5.6 cents per $10,000 trading amount is always added! ... www.stockmarketgame.org

  4. Bond Pricing Bonds are priced per $100 of bond principal A $4,000 bond with a price of $99.50/$100 will cost you: (40 x 99.50 = $3,980) + accrued interest + commission If you sell a $4,000 bond you will receive: (40 x 99.50 = $3,980) + accrued interest – commission – SEC fee www.stockmarketgame.org

  5. Par • If bond is resold (secondary market) it can be: • At a discount = < par • At a premium = > par • This fluctuates based on interest rates and time until maturity www.stockmarketgame.org

  6. Increase Investment There are two ways to increase your investment: • Interest Payments • Increase in the resale price of the bond www.stockmarketgame.org

  7. What Causes Bond Prices to Change? • Economic Crisis • Natural & Unnatural Disasters • Peace & Prosperity • Interest Rates • Rates increase = bond price decrease • Rates decrease = bond price increase www.stockmarketgame.org

  8. Bonds in SMG • Selection of 8000 – investment grade only • Treasurys ($100 increments) • Municipals (state issued only - $1000 increments) • Corporate ($1000 increments) • Maturity dates no shorter than 5 years • Trade in “Real Time” • May not be short sold • Daily feed of pricing from S&P www.stockmarketgame.org

  9. Annual interest rate Maturity Year Seq # T M or C Bond “Ticker Symbols” AXXXX.YYNN.N www.stockmarketgame.org

  10. How to Select • Buy early in the game • Look for highest current yield • Select bonds with an interest payment: • close to the game end date • Frequent payment schedules • Fed rate cuts indicate a good bond buying time www.stockmarketgame.org

  11. Bonds vs Stocks www.stockmarketgame.org

  12. What is a Bond? • Lesson Activity: You are investing $3000. • In a corporate bond issued for one year at 6% interest rate. How much interest will you make on your investment? www.stockmarketgame.org

  13. Bond Information Information for:C419C.166.87Trade CUSIP12189TAB0 ISSUER DESCRIPTIONBURLINGTON NORTHN SANTA FE COR ISSUING DESCRIPTIONDEB DATED(ISSUE) DATE 02/15/1996 MATURITY DATE 02/15/2016 PREVIOUS PAYMENT DATE 08/15/2008 NEXT PAYMENT DATE 02/15/2009 INTEREST RATE (%) 6.875 INTEREST PAY FREQ SA SP RATINGBBB+MDY RATINGN/Rl FTH RATINGN/Rl CURRENT PRICE/100 ($) 94.70100 CURRENT YIELD (%) 7.2597 www.stockmarketgame.org

  14. Bond Information • Information for:C418F.338.30Trade • CUSIP125509BE8 • ISSUER DESCRIPTIONCIGNA CORP • ISSUING DESCRIPTIONNTDATED(ISSUE) DATE07/15/1997 • MATURITY DATE 01/15/2033 • PREVIOUS PAYMENT DATE 07/15/2008 • NEXT PAYMENT DATE 01/15/2009 • INTEREST RATE (%) 8.3 • INTEREST PAY FREQSA • SP RATINGBBB+MDY RATINGBBB+FTH RATINGBBB+ • CURRENT PRICE/100 ($)100.06400 • CURRENT YIELD (%) 8.2947 www.stockmarketgame.org

  15. InvestinginBonds.com www.stockmarketgame.org

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