www.stockmarketgame.org simply bonds traded in the smg
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www.stockmarketgame.org
Simply Bonds
Traded in the SMG
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Bond Basics
• Bonds are loans– Basically an IOU– Not traded daily
• Over 3 Million domestic options– Government – Municipals – Corporate
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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! ...
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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
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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
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Increase Investment
There are two ways to increase your investment:
• Interest Payments
• Increase in the resale price of the bond
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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
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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
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Bond “Ticker Symbols”
AXXXX.YYNN.N
Seq #T M or CMaturity
Year
Annual interest rate
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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
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Bonds vs Stocks
BONDS STOCKS
What you get… IOU Ownership in company
How you trade… $ value shares
How to find… Cusip Ticker Symbol
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What is a Bond?
• Lesson Activity: You are investing $3000.
– In a corporate bond issued for one year at 6% interest rate. How much interest will you make on your investment?
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Bond Information
Information for:C419C.166.87Trade CUSIP12189TAB0
ISSUER DESCRIPTION BURLINGTON NORTHN SANTA FE CORISSUING DESCRIPTIONDEBDATED(ISSUE) DATE 02/15/1996MATURITY DATE 02/15/2016PREVIOUS PAYMENT DATE 08/15/2008NEXT PAYMENT DATE 02/15/2009INTEREST RATE (%) 6.875 INTEREST PAY FREQ SASP RATINGBBB+MDY RATINGN/Rl FTH RATINGN/RlCURRENT PRICE/100 ($) 94.70100CURRENT YIELD (%) 7.2597
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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
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