Money Market Money Market I. Chapter 10: Money Markets © Oltheten & Waspi 2012 Money Market Basics Term to Maturity < 1 year at issue Each year has 360.

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Presentation transcript:

Money Market Money Market I

Chapter 10: Money Markets © Oltheten & Waspi 2012 Money Market Basics Term to Maturity < 1 year at issue Each year has 360 days

Chapter 10: Money Markets © Oltheten & Waspi 2012 Interest Interest Bearing Periodic interest (coupon) payments Interest at Maturity Discount Paper

Chapter 10: Money Markets Discount Paper © Oltheten & Waspi 2012

Chapter 10: Money Markets © Oltheten & Waspi 2012 Bankers Discount Bankers: 360 days in a year Discount: price is calculated at a discount to the face value.

Chapter 10: Money Markets © Oltheten & Waspi 2012 Example: Buy $1,000, day discount note at 3.42 Sept 14 $1,000,000. Dec 27 Interest = $ Price =

Chapter 10: Money Markets © Oltheten & Waspi 2012 Money Market Yield To compare to other Money Market Investments

Chapter 10: Money Markets © Oltheten & Waspi 2012 Money Market Yield To compare to other Money Market Investments

Chapter 10: Money Markets © Oltheten & Waspi 2012 Straight Yield To compare to other Money Market Investments

Chapter 10: Money Markets © Oltheten & Waspi 2012 Straight Yield To compare to other Fixed Income Investments

Chapter 10: Money Markets © Oltheten & Waspi 2012 Ask Yield = straight yield for < days = for > days

Chapter 10: Money Markets © Oltheten & Waspi 2012 Treasury Bills MaturityDaysBidAskChgAsk Yield Sept Dec March Wall Street Journal © Oltheten & Waspi 2012 Ask Yield

Chapter 10: Money Markets © Oltheten & Waspi 2012 Exercise Calculate The price at which you would buy the T-Bill Money Market yield Ask Yield

Chapter 10: Money Markets © Oltheten & Waspi 2012 Treasury Bills MaturityDaysBidAskYield MM Yield Ask Sept Dec March Wall Street Journal © Oltheten & Waspi 2012

Chapter 10: Money Markets Interest at Maturity © Oltheten & Waspi 2012

Chapter 10: Money Markets © Oltheten & Waspi 2012 Interest at Maturity Discount Paper Interest at Maturity Face Face + Interest Face - discount Face

Chapter 10: Money Markets © Oltheten & Waspi 2012 Interest at Maturity 360 days in a year

Chapter 10: Money Markets © Oltheten & Waspi 2012 Example Principal: $1,000,000 Rate: 4% Term: 180 days

Chapter 10: Money Markets Discount Paper © Oltheten & Waspi 2012 t = 0 $1,000,000. t =180

Chapter 10: Money Markets Interest at Maturity © Oltheten & Waspi 2012 t = 180 $1,000,000. t =0

Chapter 10: Money Markets Money Market Yield © Oltheten & Waspi 2012 Discount Paper Interest at Maturity

Chapter 10: Money Markets Straight Yield © Oltheten & Waspi 2012 Discount Paper Interest at Maturity

Chapter 10: Money Markets © Oltheten & Waspi 2012 Calendar Issues One year has 360 days 365 days

Money Market I © Oltheten & Waspi 2012