LENGTH: 30 minutes - 1 hour

LEVEL: Beginner to Intermediate

Learning Objective:
Students will learn to evaluate the differences in price and yield among otherwise “similar” bonds

Instructions:

To start, click on the Corporate Bond or Government Bond tabs on EquitySim. Use the filters to find five similar bonds (ie, similar maturity date and similar coupon type and similar coupon rate). The closer these numbers are to each other, the better. The only rule is that each of the bonds must be issued by a different company or government entity. When you have made your selection, buy 1000 of each in a new portfolio on EquitySim. Make sure to take a snapshot of your holdings table.

Once you have selected five bonds, write a report on the following: 

  1. Make note of each of their prices. If some are different from each other, speculate on why that is the case in a brief paragraph. If some are similar, do the same.
  2. Divide the coupon by the current price to give you the current yield. Do you notice a relationship between price and yield? Next, search for the company or government’s credit rating (or speculate on it yourself). Do you notice a relationship between price and the ‘quality’ of the issuer’s credit?

    Document your all your thoughts here in another paragraph.

Deliverables: 

  1. Portfolio holdings page. 
  2. Exercise document.

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