Sheflin N. INVESTMENT GAME Round 4 - Bonds Time to get conservative with Bonds the traditional investment for "widows and orphans" and, if you want to speculate on interest rates, gamblers. You can lose with `fixed-income' assets (aka bonds) inflation and/or selling before maturity if rates rise, and of course, default. READ Bond prices, rates, yields at Fidelity Mutual Fund site: http://personal.fidelity.com/products/fixedincome/price.shtml And from Investopedia, skim the following: http://en.wikipedia.org/wiki/Bond_market http://www.investopedia.com/university/ look at the sections on: Bond & Debt Basics (beware of cookies ). also read about securitization http://www.investopedia.com/terms/s/securitization.asp and for the brave: http://en.wikipedia.org/wiki/Structured_finance and http://en.wikipedia.org/wiki/Credit_default_swap Answer the questions at the end of this document out loud to your roommate or dog (don't have a dog? My beagle is available for study help). . Homework, and final exam questions on this material will be coming. Nothing to do In VIRTUAL STOCK EXCHANGE it doesn't support bonds. HOW IS YOUR PORTFOLIO DOING? Determine your paper gain/loss and explain the causes. Compare with the performance of the S&P 500. PROBLEMS? If VSE is behaving oddly (or even if not), it's good a idea to keep a paper record of all transactions (purchases/sales). At worst, you can hand in a corrected version of your actions at the end of the game. QUESTIONS hide answers, try explaining to your cat; look up in invest-faq, investor words, etc; ask in class; DO 1. look at the interactive bond listing page at http://www.moneychimp.com/articles/bonds/bondpage.htm 2. and the page at http://www.investinginbonds.com/learnmore.asp?catid=3&id=45 3. and http://www.treasurydirect.gov/indiv/products/products.htm DEFINITIONS Bond coupon par value maturity CALL Corporate Bonds S&L Bonds (munis) Treasury bills , notes, bonds Yield to Maturity Zero Coupon Bond Bond Ratings Default Risk Interest Rate Risk Junk Bonds Widows and orphans inflation TIPS Mortgage/Asset Backed Securities
QUESTIONS 1. Who issues bonds? 2. How does the coupon of an existing bond fluctuate with interest rates? 3. How does the price of an existing bond fluctuate with interest rates? 4. How does a zero-coupon bond earn any return? 5. Which of the following will, cet. Par. Have the highest yield and why? Treasury Bill, Treasury Bond, AA Corporate Bond, Ba Corporate Bond, New Jersey Dormitory Bond. 6. Compare Bonds to Stocks from issuers point of view 7. Compare Bonds to Stocks from the buyers point of view