Test 1 Notes

Test 1 Notes - Fin 305 Money Market short-term Capital...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Fin 305 Money Market – short-term Capital Market – long-term Money Market: Debt securities only(not stocks) High quality(low default risk) Large denominations($1 million) Discount securities Most are very liquid T-Bills – most liquid/largest market T-Bills: Debt securities, no periodic interest payments 3 mo., 6 mo., or 1 yr Exempt from state taxes Computing T-Bill Yield: BDY = (Discount/face)*(360/t) BDY = bank discount yield Discount = par amount less market price Face = par amount T = # of days until maturity Prices are based on a BDY basis Computing a Bond Equivalent Yield (BEY): Truer estimate of what the investor will actually earn because it is based on a 365 day year BEY = (365*BDY)/[360 – (BDY*t)] BEY is always greater than BDY BDY is return on face value, not return on the actual amount invested Calculating a T-Bill Price: Price = F * [1 – (BDY * t/360)] T-Bills have a minimum par value of $10,000 www.publicdebt.treas.gov Commercial Paper: Maturity of less than 270 days Most common maturity range is from 30-59 days Dealer placed (60% of the paper outstanding) or directly placed
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Sold in large denominations ($100,000 or more) Institutional Investors purchase all new commercial paper and hold it until maturity Two largest issuers - GMAC and General Electric Capital Corp. Corporate equivalent of a T-bill Euro paper is denominated in euros rather than dollars A1/P1 is the highest rating (A2/P2 is second tier) Banker’s Acceptances: Essentially a postdated check upon which a commercial bank guarantees payment Sold to institutional investors Used to facilitate international trade $25 billion outstanding High quality, low default risk Large Certificates of Deposit: Large denominations of $100,000 or more; issued by commercial banks Negotiable instruments; can be bought and sold among investors Not federally insured; depends on creditworthiness of bank issuing it
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 5

Test 1 Notes - Fin 305 Money Market short-term Capital...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online