w12as1sol - 2 10,000-9,700/10,000[360/90 = 0.12 or 12...

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Capital Markets and Institutions Solution to Assignment 1 Discussion Questions 1. a. High economic growth encourages expansion by firms, which results in a strong demand for loans provided by Bank of America. b. High economic growth may result in a large volume of stock transactions in which Merrill Lynch may serve as a broker. Also, Merrill Lynch underwriters new securities that are issued when firms raise funds to support expansion; firms are more willing to issue new securities to expand during periods of high economic growth. 2. Investors are less interested in commercial paper during a recession because the probability of default increases. Consequently, issuers of commercial paper must offer a higher premium above the prevailing risk- free rate in order to make the paper attractive to investors. Problems 1. [9,100-9,000/9,000] [365/90] = 0.0451 or 4.51%
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Unformatted text preview: 2. [ 10,000-9,700/10,000] [360/90] = 0.12 or 12% 3. [1,000,000-940,000/940,000] [365/180]= 0.1294 or 12.94% 4. [ 5,000,000-4,900,000/4,900,00] [360/40]= 0.1837 or 18.37% 5. Y BEY = (100,000 – 98,000 / 98,000) (365 / 120) = 0.062 or 6.2% T-bill discount = (100,000 – 98,000 / 100,000) (360 / 120) = 0.06 or 6.00% 6. 8,816.6 = 10,000 / (1 + r) 2 solving r = 0.0649 or 6.49% 7. T Bill: Price = 1000 (1 - 14x 30/360) = 988.33 and Y EAY = (1000/988.33) 365/30-1= 0.1534 // CD:R V= 1000 (1+.1503x30/360) = 1012.525 and Price = [1012.525/ (1+.1457x30/360) ] = 1000.3787 ⇨ Y EAY = (1012.525/1000.3787) 365/30 = 0.15816 REPO: Redemption value = 1000 (1+.143x30/360) = 1011.92 ⇨ Y EAY = (1011.92/1000) 365/30- 1 = 0.1551 8. A-Public Pension Funds, B-Finance, C-Mutual Funds, D-Dealer, E-Trust, F-Credit Union/Caisse Populaire, G-Private Pension Funds 1...
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