Level 3 of 5 in the Capital Valley game

Stocks and bonds: the two ways of financing a company and earning income from it

A level is a run of 12 turns, about 30 minutes of play, that represents one year in an investor's life. This lesson plan covers level 3, which closes the Advanced course and ends with a recap.

Where it fits in the curriculum

Curriculum fit: how economic agents finance themselves, the core of the topic, with direct financing, stocks and bonds, interest rates, and the cost of credit (Grade 11 (US) / Year 12 (UK), ages 16-17). Also the main market failures (information asymmetries).

Concepts covered: debt financing and equity financing, the coupon, the risk premium, income from cash flow versus change in price, following a chain of causes, investment horizon, unrealized and realized losses, consensus and information.

Learning objectives

By the end of the session, students can:

1. Distinguish lending (the bond, with a fixed coupon paid every turn) from owning (the stock, with a price that moves), and link each one to a way of financing the company.
2. Explain the risk premium: why a company pays a higher coupon than a government.
3. Follow a chain of causes from a news item down to a sector it never names.
4. Name the two traps of a storyline that runs over several turns: selling at the first dip, and going all in on the first news item.

How the game works

Each student manages a virtual portfolio. Every turn brings one or two news items (official announcements, rumors, and so on) and an investment decision. The consequences arrive on the next turn, explained by a "Here's why" card. A virtual advisor, a character in the game, introduces each new element and comments on the results. Nothing in the game is left to chance. The world is the same for every student in a game, and only their decisions differ, which is what makes a rigorous debrief possible.

What students experience in level 3

These moments are guaranteed in every game, but this lesson plan does not say when they come or how they turn out. The teacher can build the debrief on them, and a student who reads it gains nothing. The subject of the storylines drawn depends on the game; their mechanism does not.

• Arrival in Geneva. The virtual advisor introduces the bond: lending to a government or a company in return for a coupon paid every turn. Two bonds open, the Government Bond and the Corporate Bond, at a fixed value and sellable at any time. The company pays a higher coupon than the government.
• On the third turn of the level, earnings season: the previous level's accounts, good, mixed, or disappointing, and everything listed reacts.
• Revelations. The first news item names no company (a study, a trend, a public decision). On the following turn, a company's price moves and the follow-up item names it. Whoever worked out who the story would help or hurt is a turn ahead; the others get in after the first move.
• Reversals. The correction (two turns of gains, then investors cash in, which is profit-taking, named by the virtual advisor the first time it happens) and the rebound (bad news, a rescue rumor, then the repair or the disappointment).
• One storyline in five ends differently from what the news suggested: the lead goes cold, the correction lasts, the rumor was not enough. That is the surprise, and it costs whoever believed too early.
• A storyline where the market judges before it knows: an investment's value rises on a rumor, then the facts confirm or deny it. The player cannot guess in advance, and that is the lesson.
• A macroeconomic news item that names no sector, followed the next turn by a sector that suffers the consequence. Making the link was up to the player.
• Sometimes, a news item that changes nothing: noise, which the market ignores.
• The level recap: an investment pays in two ways, through a rising price or through the income it pays out. And a stock kept after its storyline has ended earns nothing more; it only swings.

Minute-by-minute plan (computer lab)

1. Picking up (5 min). Each student reopens their game. A one-sentence reminder of the level 2 recap: the turn when everything listed moved at once, and why.

2. Guided opening turn (5 min). On the projector: the virtual advisor's briefing and the two bonds. A quick question before everyone confirms their decision: "Who would you rather lend to, the government or the company? Why does one pay more than the other?"

3. Independent play through the recap (25 min). Students move at their own pace. Two one-sentence freeze-frames: at the first news item that names nobody ("Who does it help, in your view?") and at the first correction ("Two turns of gains, then a dip with no bad news. What do you do?").

4. Class debrief (12 min). Working from the recaps on the students' screens, guide the discussion with the questions below. Show of hands: who lent to the government, who lent to the company, who guessed a revelation before the first move, who sold at the profit-taking, who was caught by a surprise ending.

5. Wrap-up (8 min). Four lines to write down: lending pays a fixed coupon, owning pays if the price rises; more risk, more coupon; a news item does not always say who it is about; a storyline has a beginning and an end, and one in five ends differently.

Flipped classroom

The assignment at the end of the previous session: "Play level 3 for next time, about 30 minutes. Write down how much of your result came from coupons and how much from prices, and what you did at the news item that named no sector." The next session opens with a 20-minute debrief using the same questions, then the wrap-up.

Debrief questions

• A news item talked about the economy in general, not about a sector. Who made the link before the price moved? What other consequences could you imagine, and for which sectors?
• The coupon was paid every turn, whatever happened. On your recap, what share of your result comes from income paid out, and what share from rising prices? What is that regularity worth, and what does it cost?
• Why does the company pay a higher coupon than the government? What would happen if it paid the same?
• A news item named no company, and a company moved the next turn. Who had guessed it, and from what clue? Getting in after the first move: was it too late?
• After two turns of gains, a price fell back with no bad news at all. Who sold? Who held? Is profit-taking bad news?
• A storyline ended differently from what the news suggested. Who was caught out? How much did it cost? Was there a clue, or nothing at all?
• A stock's price rose several turns in a row on nothing more than a rumor. Was the market "right" during those turns? Is a rising price information?

Going further

• Next session: level 4, liquidity, diversification, and crisis. Previous session: level 2.
• Writing activity: starting from a real news item about a commodity (wheat, copper, oil), write out the chain of causes down to a sector it never names.
• Taking part in Global Money Week (March) with a tournament between classes.

Practical details

• Access: https://capitalvalley.app/education
• The student version needs no account, no email address, and no personal data. Suitable for use at school, in the computer lab or on a smartphone.
• Teacher contact: [email protected]