FINE 3200 Lecture Notes - Lecture 3: Weighted Arithmetic Mean, Preferred Stock, Credit Risk
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Money market securities are called cash equivalents because of their great liquidity. The prices of money market securities are very stable, and they can be converted to cash (i. e. , sold) on very short notice and with very low transaction costs: a. rbey. = . 083565, or 8. 36: one reason is that the discount yield is computed by dividing the dollar discount from par by the par value, ,000, rather than by the bill"s price, ,600. A second reason is that the discount yield is annualized by a 360-day rather than a 365-day year. P = 1,000 [1 rbd (n/360)] where rbd is the discount yield. Pbid = 1,000 [1 . 0690(60/360)] = . 50 rbey. = 6. 98%, which exceeds the discount yield, rbd = 6. 81%. To obtain the effective annual yield, reay, note that the 60-day growth factor for invested funds is. = 1. 0719 which implies that reay = 7. 19%. P = 10,000/[1 + . 05 (91/365)] = $ 9,876. 88: a. i.
