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 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!...

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 = $3,980) + accrued interest + commission If you sell a $4,000 bond you will receive: (40 x = $3,980) + accrued interest – commission – SEC fee

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

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

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

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

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

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

Bonds vs Stocks BONDSSTOCKS What you get…IOUOwnership in company How you trade…$ valueshares How to find…CusipTicker Symbol

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?

Bond Information Information for:C419C Trade CUSIP12189TAB0 Trade 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 (%) INTEREST PAY FREQ SA SP RATINGBBB+MDY RATINGN/Rl FTH RATINGN/Rl CURRENT PRICE/100 ($) CURRENT YIELD (%)

Bond Information Information for:C418F Trade 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 ($) CURRENT YIELD (%)

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