An investor purchases a bond worth Rp. 100 million, with a 15% interest tax on the bond. The investor is faced with two different cases. Case 1: Annual inflation = 0.5%, nominal interest rate = 3.17% / year Case 2: Annual inflation = 2.96%, nominal interest rate = 5.63% / year a. In which cases do the investors receive the highest real returns? Explain.  b. In which case did the investor pay the highest taxes? Explain.  c. If you can choose, which is the best case for investors to buy bonds? Explain.

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A:

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A:

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A:

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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.