Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On March 28, 2008, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor, offered some securities for sale to the public. Under the terms

On March 28, 2008, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor, offered some securities for sale to the public. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they gave up $24,099 on March 28, 2008, for the promise of a $100,000 payment 30 years later.

1a. Why would TMCC be willing to accept such a small amount today ($24,099) in exchange for a promise to repay about four times that amount ($100,000) in the future?

1b. Would you be willing to pay $24,099 today in exchange for $100,000 in 30 years? What would be the key considerations in answering yes or no?

1c. Suppose that when TMCC offered the security for $24,099, the U.S. Treasury had offered essentially identical security. Do you think it would have had a higher or lower price? Why?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Financial Management

Authors: James C. Van Horne

10th Edition

0138596875, 978-0138596873

More Books

Students also viewed these Finance questions