Question
RBL Ltd. is planning to invest in a commercial paper. There are two options. Company As commercial paper is a 90-day paper with a par
RBL Ltd. is planning to invest in a commercial paper. There are two options. Company As commercial paper is a 90-day paper with a par value of $10,000 for a price of $9,500, and Company Bs commercial paper is a 60-day paper with a par value of $10,000 for a price of $9,400. (a) Find out the annualized yield until maturity for the respective commercial papers. Also, suggest which commercial paper should RBL Ltd. consider for investment. (Note: if required, assume 360 days in a year. Show your workings) (b) Suppose RBL Ltd. is in the 15 percent tax bracket. To match this after-tax annualized yield (computed in part (a)), find out the before-tax yield of both commercial papers A and B. (show your working)
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