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
T M or C
Maturity Year
Seq #
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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
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Bonds vs Stocks
BONDS
STOCKS
What you get…
IOU
Ownership in
company
How you trade…
$ value
shares
Cusip
Ticker Symbol
How to find…
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What is a Bond?
• Lesson Activity: You are investing $3000.
– In a corporate bond issued for one year at
6% interest rate. How much interest will
you make on your investment?
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Bond Information
Information for:C419C.166.87
Trade CUSIP12189TAB0
ISSUER DESCRIPTION BURLINGTON NORTHN SANTA FE COR
ISSUING DESCRIPTIONDEB
DATED(ISSUE) DATE 02/15/1996
MATURITY DATE 02/15/2016
PREVIOUS PAYMENT DATE 08/15/2008
NEXT PAYMENT DATE 02/15/2009
INTEREST RATE (%) 6.875
INTEREST PAY FREQ SA
SP RATINGBBB+MDY RATINGN/Rl FTH RATINGN/Rl
CURRENT PRICE/100 ($) 94.70100
CURRENT YIELD (%) 7.2597
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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
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InvestinginBonds.com
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