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CHAPTER 7

the bond will mature sometime during the year 2004. Also, look at its closing price of 641/2. This means the bond was trading at \$645. If investors hold this bond until maturity, they will receive 33 percent more than if they were to sell the bond on the open market.

Rate

Maturity (mo/yr)

8 12

Feb 08

122:21 122:29

–15

5.87

12 34

Mar 06-11

117:13 117:31

–12

5.96

Treasury bond quotes

In the preceding box, there are two quotes for Treasury bonds. The first quote is for a bond that matures in February of 2008. The rate col- umn is the same as the coupon rate shown in the corporate bond exam- ple. Treasury bonds are quoted in 30-seconds of a point. Therefore, the bid price for the first bond is 122 21/32 (122.656 percent of par) and the asked price is 122 29/32 (122.906 percent of par). If you wanted to purchase 10 of these bonds (with a par value of \$10,000), you would pay \$12,265.60 (\$10,000 î€† 1.22656). However, if you wanted to buy \$10,000 worth of these bonds, you would only buy eight bonds (10,000 ÷ 1226.56) because each bond is trading at \$1,225.65.

The second quote is for a callable bond. This is indicated by the notation under the “maturity” column, where it lists the bond as “Mar 06-11.” The first date, in this case the year 2006, is when the bond first becomes freely callable. However, the bond is due to mature in March of 2011. Thus, if there is only one date under the maturity column, the bond isn’t callable.

# CASH INVESTMENTS

Most of us think of the money we carry in our wallets as cash, and that’s it. Cash, though, has a broader definition than just the coins and bills we use to pay for goods. It is also the type of investment characterized by a high level of liquidity and little to no risk to your original investment.

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