# A New Financial Instrument (I Think) **URL:** \ **Category:** Factual Questions\ **Created:** [March 3, 2009, 5:52pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167 "2009-03-03T17:52:25Z")\ **Posts on this page:** 7\ **Page:** 1
**Author:** ![hobscrk777](https://avatars.discourse-cdn.com/v4/letter/h/a6a055/32.png) [@hobscrk777](https://boards.straightdope.com/u/hobscrk777)\ **Post date:** [March 3, 2009, 5:52pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/1 "2009-03-03T17:52:25Z")
Essentially, it would be a CD that performs and trades like a bond. Suppose investor A invests in a 1-year CD at a 5% APY. The 6-month rate is, say, 2%. To keep numbers simple, let’s say that he invests $100, so that by the end of the year he will have accumulated $104. Now suppose that 6 months after investor A invests in the CD, interest rates fall and the bank is only offering 2% on 1-year CDs and 1% on 6-month CDs. Now investor A wants to sell his CD (including all principle and interest payments) to investor B. If investor A can get anything above $102, it will be in his best interest to sell (in 6 month’s time, he will have at least equalled the 6-month yield - as it was available to him 6 months ago - and he will have the advantage of having his cash liquid again). If investor B can buy the CD for anything less than $103.95, if will be in his best interest to buy since the CD is guaranteed to produce $105 in another 6 months. Anything more than $103.95 and investor B would be better off putting it in the current, 1% 6-month CD (because $103.95 \* 1.01 = $105, the maturity value of the old CD). Does something like this exist? If not, is this sort of thing feasible (not for a layman like me, but for established brokerages)? ---
**Author:** ![cwthree](https://avatars.discourse-cdn.com/v4/letter/c/9de0a6/32.png) [@cwthree](https://boards.straightdope.com/u/cwthree)\ **Post date:** [March 3, 2009, 7:07pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/2 "2009-03-03T19:07:03Z")
Similar financial instruments exist already. I have CDs that can be sold before their maturity date. There’s no penalty for selling prematurely, although I’ll take a loss if I sell for less than the face value plus interest-to-date. ---
**Author:** ![Baracus](https://avatars.discourse-cdn.com/v4/letter/b/2bfe46/32.png) [@Baracus](https://boards.straightdope.com/u/Baracus)\ **Post date:** [March 3, 2009, 7:49pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/3 "2009-03-03T19:49:08Z")
I don’t understand what the difference is between your CD that performs and trades like a bond and an actual bond? Accruing interest? ---
**Author:** ![Frodo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/frodo/32/302_2.png) [@Frodo](https://boards.straightdope.com/u/Frodo)\ **Post date:** [March 3, 2009, 7:55pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/4 "2009-03-03T19:55:41Z")
Would an Iron Maiden CD perform better than a Metallica CD?.. ---
**Author:** ![Caldazar](https://avatars.discourse-cdn.com/v4/letter/c/8e8cbc/32.png) [@Caldazar](https://boards.straightdope.com/u/Caldazar)\ **Post date:** [March 3, 2009, 10:42pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/5 "2009-03-03T22:42:58Z")
> [@Baracus](#): > > I don’t understand what the difference is between your CD that performs and trades like a bond and an actual bond? Accruing interest? Agreed. How is what the OP described fundamentally different than a bond? I guess with this CD example, one could withdraw the money any time by accepting the early withdrawl penalty. But why wouldn’t you just sell your CD-bond instead and avoid the penalty? ---
**Author:** ![ultrafilter](https://avatars.discourse-cdn.com/v4/letter/u/3d9bf3/32.png) [@ultrafilter](https://boards.straightdope.com/u/ultrafilter)\ **Post date:** [March 3, 2009, 11:41pm UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/6 "2009-03-03T23:41:03Z")
Even with a straight up CD, you can enter into a contract and receive the present value in exchange for an obligation to give the future value at maturity. So no, there’s really nothing new here. ---
**Author:** ![hobscrk777](https://avatars.discourse-cdn.com/v4/letter/h/a6a055/32.png) [@hobscrk777](https://boards.straightdope.com/u/hobscrk777)\ **Post date:** [March 4, 2009, 12:01am UTC](https://boards.straightdope.com/t/a-new-financial-instrument-i-think/488167/7 "2009-03-04T00:01:24Z")
> [@Caldazar](#): > > Agreed. How is what the OP described fundamentally different than a bond? I guess with this CD example, one could withdraw the money any time by accepting the early withdrawl penalty. But why wouldn’t you just sell your CD-bond instead and avoid the penalty? I suppose I don’t really have an answer to this. This was just an off-the-wall idea I had late last night.