Money Markets
Problems
1.
Assume an investor purchased a sixmonth Tbill with a $10,000 par value for $9,000 and sold it
ninety days later for $9,100. What is the yield?
ANSWER:
Y
SP
PP
SP
×
365
n
$9,100
$9,000
$9,000
×
365
90
4.51%
t
=

=

=
3.
Assume an investor purchased sixmonth commercial paper with a face value of $1,000,000 for
$940,000. What is the yield?
ANSWER:
Y
$1,000,000
$940,500
$940,000
×
360
180
12.76%
cp
=

=
5.
You paid $98,000 for a $100,000 Tbill maturing in 120 days. If you hold it until maturity, what is the
Tbill yield? What is the Tbill discount?
ANSWER:
Y
T
= (SP – PP/ PP) (365 / n)
Y
T
= (100,000 – 98,000 / 98,000) (365 / 120) =6.2%
Tbill discount = (Par – PP / PP) (360 / n)
Tbill discount = (100,000 – 98,000 / 98,000) (360 / 120)
Tbill discount = 0.0612 = 6.12%
7.
A money market security that has a par value of $10,000 sells for $8,816.60. Given that the security
has a maturity of two years, what is the investor’s required rate of return?
ANSWER: