Treasury Bills And Commercial Paper参考.pptVIP

Chapter 7 Applications Of Simple Interest 7.3 Treasury Bills And Commercial Paper Treasury bills (T-bills) are paper contracts issued to lenders by the federal government and several provincial governments when they borrow money for terms of less than one year. T-bills do not carry an interest rate. The issuing government guarantees payment of the face value at maturity. The investor purchases T-bills at a discounted price reflecting a rate of return that is determined by current marked conditions. The discounted price is determined by computing the present value of the T-bills using the simple discount method . Commercial paper : are paper contracts issued by large corporations to borrow funds for the short term. Example: An investment dealer bought a 91-day Canada T-bill to yield an annual rate of return of 3.08%. What was the price by the investment dealer for a T-bill with a face value of $100,000? The investment dealer resold the $100,000 T-bill the same day to an investor to yield 2.98%, what was the investment dealer’s profit on the transaction? Solution: The maturity value is the face value of the T-bill, $100,000, the discount period has 91 days. S=$100,000 r1=3.08% t1=91/365 Find the resale price p2 s=$100,000 r2=2.98% t2=91/365 investment dealer’s profit is $99,262.52-$99,237.96=$24.56 Example: An investor purchased $250,000 in 364-day T-bills 315 days before maturity to yield 4.34%. He sold the T-bills 120 days later to yield 3.92%. How much did the investor pay for the T-bills? For how much did the investor sell the T-bills? What rate of return did the investor realize on the investment? Solution: Find how much he paid for the T-bills. t1=315 days r1=4.34% s=$250,000 The days remain to maturity =315-120=195 days t2=195 days r2=3.92% s=$250,000 Compute the rate of return p=$240,974.35 s=$244,871.77 t=120 days s=p(1+rt)