Some multinational corporations and banks run recruiting talent programs that offer about two years of diversified rotations in various business units. This recruiting system is a great opportunity to experience of breadth of rules across the business. Before taking over a fixed position in the marketing team, there is a rotation to the finance department. particularly you were assigned to the treasury team whose functions are cash management and funding. your mentor is a seasoned senior analyst who has 7-year working experience at the corporation ABC. she will be involved in your training and will give you feedback on the projects you would participate.

2. Zero-coupon Bonds: For now, Corporation ABC has managed to maintain a decent revenue stream during the lockdown because 70% of its revenue comes from a business line that sells necessity products directly through supermarkets and online. Hence ABC still has some surplus of cash which is ready to invest. Your mentor considers that ABC surplus cash must be invested in zero-coupon bonds. Find below the secondary market rates of US Treasury Bills (T-Bills) of 3-month and 1-year. The graph below also depicts the Federal Funds rates. FRED (5 points each question; total of 20 points) a) As of June 2019, which of these T-bills had a higher price? Which was the Term Premium? b) Is there a relationship between the Term structure of the T-Bills rates and the Fed Funds rate? c) Today, a T-Bill with a tenure of 3-month pays 0.10% and that of 1-year pays 0.15% (both interest rates are per year). Calculate the price of both Treasury Bills. d) Imagine that ABC could only invest in these two T-bills. ABC also expects that its revenues might decrease as future economic recovery might take longer than expected. Which T-bill should ABC Corporation Buy? FRED - Federal Funds Target Range - Upper Limit 3 Month Treasury Bill Secondary Market Rate 1-Year Treasury Bill Secondary Market Rate 30 25 20 Percent 15 10 05 00 Jul 2015 Jan 2016 Jul 2016 Jan 2017 J 2017 Jan 2018 Jul 2018 Jan 2019 Jul 2019 Jan 2020 Shaded areas indicate U.S. recessions Source: Board of Governors of the Federal Reserve System (US) fred.stouisted.org