A 5-year government bond with a face value of £100 makes annual coupon payments of 6 per cent and offers a yield to maturity of 4 per cent compounded annually. Suppose that one year later bond yields for bonds of this risk class have fallen to 3 per cent. What is (i) the price of the bond in one year (to the nearest £0.01) and (ii) the rate of return (to the nearest 0.01%) which the bondholder has earned over the 12-month period from today to one year from now?   a 111.15     4%   b 111.15    7.57%   c none of the above   d  108.90     4%   e 108.90   7.57%

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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.