Simply Bonds Traded in the SMG www.stockmarketgame.org

Bond Basics Bonds are loans Over 3 Million domestic options Basically an IOU Not traded daily Over 3 Million domestic options Government Municipals Corporate Government or treasury bonds are backed by full faith & credit of the US Govt. They are considered “bulletproof” and thus un-rated Par value = amount repaid to investor when the bond matures (similar to principal) www.stockmarketgame.org

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

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 Buying a bond you will pay accrued interest + commission (2%) Selling a bond you get accrued interest – commission (2%) – SEC fee If bond is resold (secondary market) it can be done: At a discount = < par At a premium = > par This fluctuates based on interest rates. www.stockmarketgame.org

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

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

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 Basic supply & demand As stocks become more attractive, bonds are less popular. to entice bond buyers interest rates go up www.stockmarketgame.org

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 Maturity is the length of time the money is loaned. On this date, the original principal borrowed “comes due”. Longer maturity terms equal higher interest rates. Coupon frequency is anything from monthly, quarterly, semi-annually to yearly Investment grade means rated Triple B or higher. S&P is considered one of the leading bond rating companies in the industry. www.stockmarketgame.org

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

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

Bonds vs Stocks BONDS STOCKS What you get… IOU Ownership in company How you trade… $ value shares How to find… Cusip Ticker Symbol www.stockmarketgame.org

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? $180 www.stockmarketgame.org

Bond Information Information for:C419C.166.87 Trade CUSIP12189TAB0 ISSUER DESCRIPTION BURLINGTON 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

Bond Information Information for:C418F.338.30 Trade 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

InvestinginBonds.com www.stockmarketgame.org