# review 1 - Prof Irvine - Investments Review Sheet Keys: You...

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Prof Irvine - Investments Review Sheet Keys: You are allowed to bring in a formula sheet. The formula sheet should contain formulas only, no notes or definitions. I reserve the right to examine, edit and/or confiscate a formula sheet if I think it does not conform to these guidelines. Concentrate on the materials, problems and discussions we have had in class. This sheet was originally created by Linzie, a former student who became my TA and thus knew me and the class quite well. However, this study sheet is based on her notes and not guaranteed to be a complete summary of all exam material. I am including it because students have found it helpful in the past. I. Money Markets Short-term securities, less than 1 year to maturity, are highly marketable, liquid, low risk debt securities. Often considered cash equivalents. T-Bills – Most liquid of money market instruments. For the purpose of this class think of this rate as the government risk free rate. It is essentially close to the return you would get if you put your money into the bank instead of investing in risky assets. (In reality the T- Bill is slightly higher than most bank interest rates.) Bank Discount Method – Annualizes the bill’s discount from par based on a 360- day year. Divides by Face Value: Rate = (Face Value – Bill Price) / Face Value x (360 /days to maturity) Bond Equivalent Yield BEY - Annualizes the bill’s discount from par based on a 360- day year. Divides by Face Value: Rate = (Face Value – Bill Price) / Bill Price Value x (365 /days to maturity) Uses Simple Interest. Equivalent Annual Yield : Uses compounding to turn BEY simple interest rate into a compounded annual rate: Rate= (1+ (Face Value – Bill Price) / Bill Price)) 365/n

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Money market instruments: less than 1 year to maturity Certificate of Deposit – Time deposit with bank – fixed term issue in denominations larger than \$100,000. Not payable on demand. Commercial Paper – Short term unsecured debt notes issued by large companies directly to the public rather than borrowing from banks. Bankers’ Acceptances
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## This note was uploaded on 06/05/2011 for the course FINA 4310 taught by Professor Staff during the Fall '08 term at University of Georgia Athens.

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review 1 - Prof Irvine - Investments Review Sheet Keys: You...

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