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Lesson plan · Investing · Lesson 3

Bonds

Lending money to governments and companies in exchange for interest.

  • 45 minutes
  • Grades 9–12
  • Intermediate
  • Activity: whole class
Present slidesWorksheet + keyStudent lesson

Objectives

Students will be able to:

  • Explain a bond as a loan made by the investor
  • Calculate yearly interest from a coupon rate and face value
  • Explain why existing bond prices fall when interest rates rise

Materials

  • Slide deck and a projector
  • Worksheet (one per student)
  • Exit ticket slips (bottom of the worksheet)

Key vocabulary

Credit risk
The chance the borrower can't pay you back. Riskier borrowers have to offer higher interest to attract lenders.

45-minute agenda

  1. 0–5 min

    Warm-up

    Post: “Would you lend $100 to a friend who always pays you back, or to a stranger? What would you charge each one?”

    Teacher note: Riskier borrowers must pay more to borrow — the same is true for bond issuers.

  2. 5–17 min

    Direct instruction

    Present the lesson slides. Make sure students leave with these points:

    • Bond = a loan you make. Stock = ownership.
    • Coupon rate × face value = yearly interest.
    • Riskier borrowers pay higher interest.
    • When rates rise, existing bond prices fall.

    Use the “See it” slide (How a bond works) to make the idea visual.

  3. 17–22 min

    Worked example

    Walk through “Leo's 10-year bond” on the slides. Pause before the result and ask students to predict it.

  4. 22–32 min

    Bond Auction

    Format: whole class · 10 minutes

    1. Three borrowers each want to sell a $1,000, 5-year bond: the U.S. Treasury, a large, stable company, and a brand-new startup.
    2. Students write the yearly interest rate they would demand from each; collect and post the class averages.
    3. Twist: interest rates rise and new bonds now pay 6%. Would anyone pay full price for an old bond paying 4%?
    4. Discuss what happens to the old bond's price.

    What to look for: The class usually demands the least from the Treasury and the most from the startup — that's credit risk. When new bonds pay 6%, an old 4% bond is worth less, so its price falls.

  5. 32–37 min

    Check for understanding

    Use the question slides — or run them as a Four Corners game. Answers:

    1. How much interest do you receive each year? — C. $50
    2. What happens to your bond's price if you try to sell it early? — A. It usually falls, because new bonds pay more.
    3. Corporate bonds usually pay higher interest than U.S. Treasury bonds because companies are more likely to default. — True
  6. 37–42 min

    Discussion

    • Why would anyone buy a bond instead of a stock?
    • How is buying a bond similar to a bank lending you money?
  7. 42–45 min

    Exit ticket

    Prompt: Fill in: A bond is a ___ you make. A stock is ___.

    Answer: loan; ownership.

Differentiation

Common misconception

“Bonds can't lose value.” Their prices move with interest rates, and a borrower can fail to pay.

Support

Show the loan picture: you → $1,000 → borrower; borrower → yearly interest → you; face value back at maturity.

Extension

Explain in your own words why a bond's price and interest rates move in opposite directions, using a numeric example.

Homework or make-up work

Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/investing/bonds. No account needed; progress saves on their device.