5. FED FUNDS VERSUS T-BILLS In this problem we explore the difference between investing overnight (so daily compound- ing) versus investing in a discount instrument, assuming both have the same quoted yield. (a) Suppose you deposit $1M at the Fed (or lend to the Federal Funds market) at a 2.00% rate (ACT/360 basis). How much would be returned to you the following day? (b) What if today is Friday? How much returned to you on Monday? (c) After compounding, how much will you have by lending and rolling over for 1 week (Friday to Friday)? (d) Does it matter to how much we receive after lending for one week starting from another day of the week (Mon, Tue, Wed or Thu)? (e) How much do we have after 52 weeks? (f) In comparison, how much would we have if we invested $1M (market value not face value) in 52-week T-bills at a 2.00% yield? (g) Which gives us more (e) or (f)? Can you explain why? 5. FED FUNDS VERSUS T-BILLS In this problem we explore the difference between investing overnight (so daily compound- ing) versus investing in a discount instrument, assuming both have the same quoted yield. (a) Suppose you deposit $1M at the Fed (or lend to the Federal Funds market) at a 2.00% rate (ACT/360 basis). How much would be returned to you the following day? (b) What if today is Friday? How much returned to you on Monday? (c) After compounding, how much will you have by lending and rolling over for 1 week (Friday to Friday)? (d) Does it matter to how much we receive after lending for one week starting from another day of the week (Mon, Tue, Wed or Thu)? (e) How much do we have after 52 weeks? (f) In comparison, how much would we have if we invested $1M (market value not face value) in 52-week T-bills at a 2.00% yield? (g) Which gives us more (e) or (f)? Can you explain why