Question
a. Woolworth company has decided to issue 90-day commercial paper with a face value of $10,000,000 to purchase additional inventory to meet the increased demand
a. Woolworth company has decided to issue 90-day commercial paper with a face value of $10,000,000 to purchase additional inventory to meet the increased demand during the holiday season. If a 90-day treasury bill is yielding 1.5% p.a., calculate and explain which of the following is most likely the selling price for Woolworths commercial paper in the market.
-P=$9,950,920
-P=$9,963,150
-P=$9,980,960
b. Woolworth is also issuing 3-year bonds with a face value of $1,000 and quarterly coupon payments. If the bonds are selling for $1045 and have a yield to maturity of 6% p.a.,
i.Use the bond pricing theory to explain which of the following statements on the annual coupon rate is true.
-Coupon rate>6%
-Coupon rate <6% Coupon rate =6%
ii.Calculate the annual coupon payment (in dollars).
c. Assume investor Sam bought the 3-year bond issued by Woolworth 2 years after its issuance for $980 and kept it until maturity. Calculate the holding period yield per annum he earned on this investment.
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