Question
6. Assume that commercial paper maturing in 75 days, with a par value of $1,000,000, currently sells for a price of $995,000. A. If you
6. Assume that commercial paper maturing in 75 days, with a par value of $1,000,000, currently sells for a price of $995,000.
A. If you purchase this commercial paper today:
What is your expected holding period return? What is your (expected) annualized yield? What is the effective annual return on this investment?
B) When comparing the annualized yield on this security to the annualized yield on a 75-day T-Bill:
What is one reason why you would expect the commercial paper yield to be higher than the T-Bill yield? Explain (but in one sentence).
What is one reason why you would expect the commercial paper yield to be only slightly higher than the T-Bill yield? Explain (but in one sentence).
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