Morrisette Records’ commercial paper is currently selling at 98.512 percent of maturity value; it matures in...
Morrisette Records’ commercial paper is currently selling at 98.512 percent of maturity value; it matures in 75 days.
a. What annualized yield is it offering to investors? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Annualized yield ______%
b. What annual effective yield [with compounding affects is it offering to investors? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Annual effective yield ______%
Homework Answers
a
assume Face value = 100
Price of Commercial paper = 98.512% of maturity or par
Value= 98.512
Days to Maturity= 75
Yield on commercial paper= (FV- price of cp)/price of cp*365/no of
days
(100-98.512)/98.512*365/75
0.07350982621 or
7.35%
Annualized yield is 7.35%
b.
Annual effective yield = (FV/Price)^(365/days to
Maturity)
((100/98.512)^(365/75))-1
0.07568770224 or
7.57%
Annual effective yield is 7.57%
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