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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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Certificate of Deposit (CD), Commercial Paper (CP), Treasury Bill, True Yield and Discount Rate

Definition

Certificates of deposit (CDs), commercial paper (CP) and Treasury bills (T-bills) are all securities issued to borrow money short-term (typically no longer than a year). In most markets, investors are usually professional – companies, fund managers, banks, etc. – although in some markets these instruments are sometimes issued in denominations small enough to allow for individuals to invest in them. All three instruments are usually ‘negotiable’, meaning that they can be bought and sold, subsequent to their original issue, in the ‘secondary market’.

The true yield (or simply yield) on a short-term investment is the income earned on it as ...

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