3.04BM What is a Bond?

Last updated 5 months ago

24 questions

Note from the author:

Instructions

Warm-Up:  
Notes:  

Yield = Interest rate = Coupon or coupon rate

3.04BM What is a Bond?

Last updated 5 months ago

24 questions

Note from the author:

Instructions

Warm-Up:  
Notes:  

Yield = Interest rate = Coupon or coupon rate

Your friend asks to borrow $50 and offers to pay you back with interest. What factors would you consider in your decision to accept or decline their request?

EDPUZZLE: Investing Basics: Bonds 📷8 min
Just as you might loan money to a friend, you can loan money to a government or corporation through a bond. Bonds are one of the most common investment options available to you. Watch this video to learn more about bonds and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.

NOTE: EdPuzzle videos shuffle answer choices and do not always match the order provided in the lesson here.

INFOGRAPHIC: What are the Main Types of Bonds?
As you learned in the previous video, you can buy a corporate bond or a government bond. There are different types of bonds within these two categories as well! Read through the infographic on this page to learn about the different bond types. Then, answer the questions.

The higher the risk associated with a bond, the _______ (more/less) likely a corporation might default on paying the investor. Interest rates for riskier bonds tend to be _______ (higher/lower) so that investors are _______ (more/less) willing to take on that risk.
BONUS: A riskier bond usually comes from a corporation that has a_______ (low/high) credit rating.

Which tends to be a riskier investment - corporate bonds or government bonds?_______  Why?_______ 

Which type of bond would you be comfortable investing in? Explain.

INFOGRAPHIC: The Bond See-Saw
VIDEO: Back to Basics: Understanding Yield and the Effects of Rising Rates 📷9 min
If you buy a bond and hold it through its maturity date, the ups and downs of the bond market will not impact your investment. However, if you decide to sell a bond before its maturity date, you need to understand how the current market’s interest rates impact the price of your bond. Read through this infographic and watch the video to learn more about this relationship. Then, answer the questions.

When overall interest rates rise (to 10%), the bond you already own (with 5% coupon rate) becomes _______ (less/more) valuable to potential buyers, so its price will _______ (increase/decrease).
When overall interest rates fall (to 2%), the bond you already own (with 5% coupon rate) becomes _______ (less/more)valuable to potential buyers, so its price will _______(increase/decrease .
Generally, the longer the duration of the bond, the _______ (lower/higher) the chance the bond price may change due to changes in yield.
Explain why someone who is not interested in selling their bond before its maturity date does not have to worry about the current bond market and its impact on the price of their bond._______ 

VIDEO: Individual Bonds vs. Bond Funds: What’s the Difference? 📷5 min
When investing in bonds, most investors choose to invest in bond funds, rather than selecting individual bonds. Watch this video to learn about bond funds and how they differ from bonds. Then, answer the questions.

Bond:
How you make money:_______ 
Pros:_______ 
Cons: _______ 

Bond Fund: 
How you make money:_______ 
Pros:_______ 
Cons: _______ 

ACTIVITY: FINE PRINT: Bond Fund Fact Sheet
When selecting a bond fund to invest in, it’s important to analyze its fund fact sheet. In this activity, you’ll practice reading a bond mutual fund fact sheet. Follow the directions on the worksheet to complete this activity.

Before doing this activity watch this video: How to Read a Bond Fund Fact Sheet,

Exit Ticket: 

3.04BM What is a Bond?

3.04BM What is a Bond?

Your friend asks to borrow $50 and offers to pay you back with interest. What factors would you consider in your decision to accept or decline their request?

EDPUZZLE: Investing Basics: Bonds 📷8 min

INFOGRAPHIC: What are the Main Types of Bonds?

Which type of bond would you be comfortable investing in? Explain.

INFOGRAPHIC: The Bond See-Saw

VIDEO: Back to Basics: Understanding Yield and the Effects of Rising Rates 📷9 min

VIDEO: Individual Bonds vs. Bond Funds: What’s the Difference? 📷5 min

ACTIVITY: FINE PRINT: Bond Fund Fact Sheet

Your friend asks to borrow $50 and offers to pay you back with interest. What factors would you consider in your decision to accept or decline their request?

EDPUZZLE: Investing Basics: Bonds 📷8 min

By the end of a bond's maturity, the investor will have received…Only the face value of the issued bondThe face value of the bond issued and interest paymentsOnly interest paymentsHalf the face value of the issued bond and interest payments

INFOGRAPHIC: What are the Main Types of Bonds?

Which type of bond would you be comfortable investing in? Explain.

INFOGRAPHIC: The Bond See-Saw

VIDEO: Back to Basics: Understanding Yield and the Effects of Rising Rates 📷9 min

VIDEO: Individual Bonds vs. Bond Funds: What’s the Difference? 📷5 min

ACTIVITY: FINE PRINT: Bond Fund Fact Sheet

What does this fund primarily invest in?U.S. Treasury securitiesAn index of large-capitalization stocksCorporate investment-grade bondsAn equal mix of stocks and bonds

What is a key risk of investing in this fund?This fund invests in very speculative, small companiesYou are guaranteed only a small amount of interest income each yearIf interest rates increase, this fund could lose valueThe fund tracks the S&P 500, which is a risky short-term investment

What are this fund’s total net assets?$4.07 billion$6.8 billion$9.2 billion$11.325 billion

Which benchmark is this fund tracking?Vanguard Intermediate Term Treasury Fund IndexBloomberg US 5-10 Year Treasury IndexIssuer Bonds IndexVanguard Fixed Income Group Index

What is the level of risk of this investment?Lowest riskLow riskMedium riskHigh risk

This fund’s expense ratio is _______. You would pay _______ in fees on a balance of $10,000.0.01%; $10.20%; $203.78%; $3784.07%; $407

What is the minimum investment for this fund?$3,000$5,271$10,000There is no specified minimum investment

If you invested $10,000 in this fund in January 2014, how much would it be worth in December 2023?$10,000$10,407$11,325$11,496

What was this fund’s rate of annual return in 2023?2.28%4.07%4.11%217%

In the last 10 years shown, how many years did this fund have NEGATIVE returns?0 years2 years5 years8 years

Part II: What Did You Learn?Based on this information, do you think this fund is a good investment? Explain why or why not.

Which of the following most accurately describes what a bond is?

Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

One difference between bonds and bond funds is…

By the end of a bond's maturity, the investor will have received…Only the face value of the issued bondThe face value of the bond issued and interest paymentsOnly interest paymentsHalf the face value of the issued bond and interest payments

What does this fund primarily invest in?U.S. Treasury securitiesAn index of large-capitalization stocksCorporate investment-grade bondsAn equal mix of stocks and bonds

What is a key risk of investing in this fund?This fund invests in very speculative, small companiesYou are guaranteed only a small amount of interest income each yearIf interest rates increase, this fund could lose valueThe fund tracks the S&P 500, which is a risky short-term investment

What are this fund’s total net assets?$4.07 billion$6.8 billion$9.2 billion$11.325 billion

Which benchmark is this fund tracking?Vanguard Intermediate Term Treasury Fund IndexBloomberg US 5-10 Year Treasury IndexIssuer Bonds IndexVanguard Fixed Income Group Index

What is the level of risk of this investment?Lowest riskLow riskMedium riskHigh risk

This fund’s expense ratio is _______. You would pay _______ in fees on a balance of $10,000.0.01%; $10.20%; $203.78%; $3784.07%; $407

What is the minimum investment for this fund?$3,000$5,271$10,000There is no specified minimum investment

If you invested $10,000 in this fund in January 2014, how much would it be worth in December 2023?$10,000$10,407$11,325$11,496

What was this fund’s rate of annual return in 2023?2.28%4.07%4.11%217%

In the last 10 years shown, how many years did this fund have NEGATIVE returns?0 years2 years5 years8 years

Part II: What Did You Learn?Based on this information, do you think this fund is a good investment? Explain why or why not.

Which of the following most accurately describes what a bond is?

Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

One difference between bonds and bond funds is…

By the end of a bond's maturity, the investor will have received…
Only the face value of the issued bond
The face value of the bond issued and interest payments
Only interest payments
Half the face value of the issued bond and interest payments

What does this fund primarily invest in?
U.S. Treasury securities
An index of large-capitalization stocks
Corporate investment-grade bonds
An equal mix of stocks and bonds

What is a key risk of investing in this fund?
This fund invests in very speculative, small companies
You are guaranteed only a small amount of interest income each year
If interest rates increase, this fund could lose value
The fund tracks the S&P 500, which is a risky short-term investment

What are this fund’s total net assets?
$4.07 billion
$6.8 billion
$9.2 billion
$11.325 billion

Which benchmark is this fund tracking?
Vanguard Intermediate Term Treasury Fund Index
Bloomberg US 5-10 Year Treasury Index
Issuer Bonds Index
Vanguard Fixed Income Group Index

What is the level of risk of this investment?
Lowest risk
Low risk
Medium risk
High risk

This fund’s expense ratio is _. You would pay _ in fees on a balance of $10,000.
0.01%; $1
0.20%; $20
3.78%; $378
4.07%; $407

What is the minimum investment for this fund?
$3,000
$5,271
$10,000
There is no specified minimum investment

If you invested $10,000 in this fund in January 2014, how much would it be worth in December 2023?
$10,000
$10,407
$11,325
$11,496

What was this fund’s rate of annual return in 2023?
2.28%
4.07%
4.11%
217%

In the last 10 years shown, how many years did this fund have NEGATIVE returns?
0 years
2 years
5 years
8 years

Part II: What Did You Learn?
Based on this information, do you think this fund is a good investment? Explain why or why not.

By the end of a bond's maturity, the investor will have received…
Only the face value of the issued bond
The face value of the bond issued and interest payments
Only interest payments
Half the face value of the issued bond and interest payments

What does this fund primarily invest in?
U.S. Treasury securities
An index of large-capitalization stocks
Corporate investment-grade bonds
An equal mix of stocks and bonds

What is a key risk of investing in this fund?
This fund invests in very speculative, small companies
You are guaranteed only a small amount of interest income each year
If interest rates increase, this fund could lose value
The fund tracks the S&P 500, which is a risky short-term investment

What are this fund’s total net assets?
$4.07 billion
$6.8 billion
$9.2 billion
$11.325 billion

Which benchmark is this fund tracking?
Vanguard Intermediate Term Treasury Fund Index
Bloomberg US 5-10 Year Treasury Index
Issuer Bonds Index
Vanguard Fixed Income Group Index

What is the level of risk of this investment?
Lowest risk
Low risk
Medium risk
High risk

This fund’s expense ratio is _. You would pay _ in fees on a balance of $10,000.
0.01%; $1
0.20%; $20
3.78%; $378
4.07%; $407

What is the minimum investment for this fund?
$3,000
$5,271
$10,000
There is no specified minimum investment

If you invested $10,000 in this fund in January 2014, how much would it be worth in December 2023?
$10,000
$10,407
$11,325
$11,496

What was this fund’s rate of annual return in 2023?
2.28%
4.07%
4.11%
217%

In the last 10 years shown, how many years did this fund have NEGATIVE returns?
0 years
2 years
5 years
8 years

Part II: What Did You Learn?
Based on this information, do you think this fund is a good investment? Explain why or why not.