The treasurer of a large corporation wants to invest $23 million in excess short-term cash in a particular money market inves prospectus quotes the instrument at a true yield of 3.42 percent; that is, the EAR for this investment is 3.42 percent. Howeve treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has alre bought. If the term of the instrument is 122 days, what are the bond equivalent and discount yields on this investment? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places. Bond equivalent yield Discount viold. % 01

The treasurer of a large corporation wants to invest $23 million in excess short-term cash in a particular money market inves prospectus quotes the instrument at a true yield of 3.42 percent; that is, the EAR for this investment is 3.42 percent. Howeve treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has alre bought. If the term of the instrument is 122 days, what are the bond equivalent and discount yields on this investment? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places. Bond equivalent yield Discount viold. % 01

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

The treasurer of a large corporation wants to invest $23 million in excess short-term cash in a particular money market investment. The
prospectus quotes the instrument at a true yield of 3.42 percent; that is, the EAR for this investment is 3.42 percent. However, the
treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has already
bought. If the term of the instrument is 122 days, what are the bond equivalent and discount yields on this investment?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.
Bond equivalent yield
Discount yield
%
%

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Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Price increases by
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