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Bonds & The Stock Market Game TM

Bonds & The Stock Market Game TM. Bonds in General. Universe of domestic bonds is greater than 3 million bonds US Treasuries Municipals (State & Local) Agencies Corporates Bonds don’t trade everyday Prices are a function of: ratings, federal interest rate, and availability .

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Bonds & The Stock Market Game TM

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  1. Bonds & The Stock Market Game TM

  2. Bonds in General • Universe of domestic bonds is greater than 3 million bonds • US Treasuries • Municipals (State & Local) • Agencies • Corporates • Bonds don’t trade everyday • Prices are a function of: ratings, federal interest rate, and availability

  3. Bonds in General • Bonds are identified by a 9 digit cusip # • Treasury bonds sell in increments of $100 • Municipals and corporates trade in increments of $1,000

  4. Bonds in General • Buy a bond you also pay for the accrued interest plus commission • Sell a bond you also get accrued interest less commission less SEC fee • Accrued interest for treasuries is calculated differently than for municipals and corporates (see handout)

  5. Bonds in General • 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

  6. Bonds in General • Bonds come in many flavors • Fixed and variable interest rates • Tax deductibles • Convertibles • Callable and non-callable • Puts • Interest compounding • Various coupon frequencies • Inflation adjusted

  7. Bonds in The SMG • SMG Bond selection criteria • Non-callable • Treasuries, agencies, municipals and corporates • State issued municipals only • Fixed coupon rate • Coupon frequencies • Monthly • Quarterly • Semi-annually • Yearly

  8. Bonds in The SMG • SMG Bond selection criteria cont… • No puts • No bonds indexed to inflation • S & P designated investment grade (BBB or greater) • Bonds with maturity date greater than 5 years Reduced # of bonds from 3 million to 8 thousand

  9. Annual interest rate Maturity Year Seq # T M or C Bonds in The SMG • Bonds selected will be priced daily by S & P • Regions can be flagged by coordinators to allow bond trading • Bond ticker symbols will have the following 12 position format: AXXXX.YYNN.N

  10. Bonds in The SMG • Bonds can not be short sold • Bonds like mutual funds trade real time (no cancellations) • Coupon payments are posted when due • Bonds can be traded 00:00 to 23:00 Hours except when system is unavailable

  11. Bonds in The SMG • Trades entered on weekends and holidays will post next business day. Trades, as usual, will reside in pending until then • Diversity rule applies to bonds also • Margin requirements • Stocks and mutual funds at 50% • Corporate bonds at 75% • Municipal bonds at 90% • Treasury bonds at 96% So buying power calculation is slightly more complex

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