Six bonds start at $1,000. Follow the news for 30 years and see how bond prices react.
What students should notice
Pick a bond and follow its line. Before clicking “Next year,” predict whether its price will rise or fall. Then read the news and explain what changed.
- Interest rates rise → fixed-rate bond prices fall. New bonds offer better interest payments, so buyers pay less for the old bonds. When required yields fall, prices rise.
- Compare 10 years with 30 years. Compare the two Treasuries or the two AA bonds. In this game, each pair has the same annual coupon. The longer bond usually has the larger price swing because its payments are farther away.
- The coupon stays fixed. A $50 annual coupon means $25 every six months. A lower market price does not reduce the promised coupon; default can stop payments.
- Year 10: surviving 10-year bonds repay $1,000. If you hold the bond to maturity and the issuer pays as promised, you receive the $1,000 principal plus the final coupon. The line ends because the bond has matured. Earlier price declines do not change that promised principal repayment.
- Coupons are extra. The $50 annual coupon bond pays $500 in coupons over 10 years, plus $1,000 principal: $1,500 received altogether, assuming all payments are made. The chart shows bond price, not total money received.
- Year 10 is not maturity for a 30-year bond. It still has 20 years left. Its price can be above or below $1,000. Surviving 30-year bonds repay $1,000 at Year 30.
- Credit risk can change the ending. In Year 7, the junk issuer defaults: both junk bonds fall to an assumed $350 recovery claim, stop paying coupons, and lose the promise of full $1,000 repayment. Holding to maturity does not remove default risk.
- Inflation reduces buying power. Receiving $1,000 later does not mean it buys as much as $1,000 today. In this game, inflation changes bond prices when the news also changes required yields.
Discuss: Which bond reacts most to rising yields? Why do surviving 10-year lines end at $1,000, while junk bonds do not? If you sell before maturity, you receive the sale price and give up the bond’s later payments.
Prices move. Surviving bonds end at $1,000.
Price in dollars · face value $1,000$1,000 FACE VALUE
Every bond that does not default repays $1,000 at its own maturity—year 10 or year 30. Coupons are paid separately.
The 10-year lines stop at year 10; only the 30-year lines continue. Select a year below to revisit its news and prices. Uncheck a bond above to simplify the graph.
How the simulation works · formulas and assumptions
“T bond” means U.S. Treasury: the 10-year security is technically a Treasury note. The two AA corporate bonds share one investment-grade issuer; the two junk bonds share one speculative-grade issuer. When the junk company goes bankrupt, both junk bonds default together.
All bonds have $1,000 face value, fixed coupons, semiannual payments and an initial price of $1,000. Initial annual coupon rates and yields are 3% for both Treasuries, 5% for both AA corporate bonds, and 8% for both junk bonds. Keeping the starting yield equal within each pair helps students compare maturity risk. These are illustrative values, not current market quotes.
At each year-end, market yields and credit spreads change according to the headline. Price is the present value of remaining coupons and principal, discounted at the required annual yield divided by two. Remaining periods = (original maturity − elapsed years) × 2. Inflation is shown separately; it affects prices here only when the scenario also changes required yields.
At year 7 the junk issuer defaults. Both junk bonds drop to an assumed $350 recovery claim, with no further coupons or promised principal repayment. The chart keeps that recovery claim at $350 afterward so students can compare the loss. Actual recoveries and settlement timing vary.
At year 10, surviving 10-year bonds reach $1,000 redemption value; their principal is repaid. Their graph lines stop at year 10 and their entries disappear from subsequent price tables. Historical points remain visible. The 10-year junk recovery line also ends at year 10. Surviving 30-year bonds retain market price risk until they repay $1,000 at year 30. Treasury payments are honored in this model. News can have different market effects in reality: war, a boom, or a recession does not force a single price direction.
Formula: Price = Σ coupon payment / (1 + yield / 2)t + face value / (1 + yield / 2)N. Taxes, trading costs and reinvestment are excluded.