What are bonds[]
Bonds are like a reversed loan - instead of you paying interests to the bank, the banks pays them off to you.
These interests the bank has to give you are paid around midnight. Thus giving an excellent buffer to catch the taxes you have to pay.
A bond has an issue price, which is the price you have to pay to buy them, a market price, which is the value of the bond at a given time, and a principal which is the amount you will receive back in your bank account when the bond expires.
Features of a bond[]
Issuer[]
The issuer of a bond is the entity that is borrowing the money. When you buy a bond you are actually borrowing money from the issuer who is willing to pay interest to you as compensation. In Businessgame, all bonds are issued by the Businessgame Bank.
Issue price[]
The issue price is the price at which bonds are being sold. Note that the issue price is not always the same as the principal of a bond. This means that you sometimes pay more or less than the actual value of the bond, of course, this has an impact on the interest rate you'll be given. Bonds that come at a discount usually give less interest.
Market price[]
The market price of a bond is the value the bond has at that given moment. The value of the bond will drift towards the principal over its lifetime. The first-day market price of the bond will be equal to the issue price, by the last day, the market price will have shifted and will be equal to the principal.
Principal[]
The principal of a bond is the end value of the bond. This value is the base upon which the interest is calculated. The principal is the amount of money you will receive when the bond expires.
Interest rate[]
The interest rate is the percentage of the value of the bond you will receive daily. It is based on the principal of the bond. So when the interest rate is 10% and the principal of the bond is €100, you will receive €10.
Maturity[]
Maturity is the lifetime of the bond. The bond will expire after the given amount of days at which point the issuer will return the principal of the bond to the bondholder. The bond will cease to exist and no more interests will be paid.
Yield[]
The yield is the effective return an investor makes on the bond. Basically, this is the amount of money you will make per €100 invested (issue price) after the bond has expired.
Bond values[]
In Businessgame bonds will be issued at 2 principals. There is a cheap version of €10,000 and an expensive one for €250,000. Of course, the more expensive bonds will have a higher yield.
For simplicity bonds of the same price category and the same maturity will have the same yield.
Types of bonds[]
The Businessgame Bank issues a different number of bonds. Each type has its own advantages and disadvantages and behaves a little differently. At the moment the game contains the following types:
Plain vanilla bonds[]
These are simple bonds with the same issue price as the principal and a fixed interest rate.
Zero-coupon bonds[]
These bonds don't pay any interest during their lifetime. However, you will be able to buy these bonds at a discount. The principal of the bond will be far higher than the issue price you'll pay for it.
Premium bonds (Above par)[]
Premium bonds (also called above par) are bonds where the issue price is higher than the actual principal; which means you'll be paying a premium to buy the bond. Of course, you will be compensated for this premium by higher interest rates than a regular bond.
Discount bonds (Below par)[]
Discount bonds are bonds where the issue price is lower than the actual principal; which means you'll be getting a discount when you buy the bond. Of course, the issuer will pay lower interest rates than a regular bond.
Maturities[]
Bonds will be available at the following maturity lengths:
- 5 days
- 10 days
- 20 days
- 30 days
- 60 days
- Forever
Yields[]
The yield of a bond is dependant on the value of the bond and its maturity length.
| Maturity | €10,000 bond | €250,000 bond |
|---|---|---|
| 5 | 25% | 40% |
| 10 | 60% | 100% |
| 20 | 150% | 250% |
| 30 | 300% | 500% |
| 60 | 750% | 1200% |
Effect on your ranking[]
Buying bonds won't have an instant effect on your rankings. For ranking calculations, the market price of the bonds is used. This market price will adjust daily based on the number of days left on the bond. At the end date, the market price will be equal to the principal value. This adjustment will happen linearly. So if a bond has a 10 day maturity, an issue price of €10,000, and a principal of €12,000, the market price will start at €10,000 and increase by 200 each day.