Which of the following investments do you prefer? (a) Purchase a bond with a single payment of $1000 in ten years, for a price of $550. (b) Invest $550 for ten years in PNC Bank at a guaranteed annual interest rate of 4.5%.

Which of the following investments do you prefer? (a) Purchase a bond with a single payment of $1000 in ten years, for a price of $550. (b) Invest $550 for ten years in PNC Bank at a guaranteed annual interest rate of 4.5%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

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Concept explainers

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.

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