Suppose the term structure of risk-free interest rates is shown below. 1 year 1.99 2 years 3 years 2.41 2.74 Term Rate (EAR, %) What is the present value of an investment that pays $100 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, which discount rate should you use? 5 years 7 years 10 years 20 years 3.32 3.76 4.13 4.93 The present value of the investment is $ 285.42. (Round to the nearest cent.) To value this investment correctly using the annuity formula, use the discount rate 2.74 %.

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.