1. III: Money Market
10: Money Market I

2. Money Market Basics Term to Maturity < 1 year at issue
Each year has 360 days

3. Interest Interest Bearing Interest at Maturity Discount Paper
Periodic interest (coupon) payments
Interest at Maturity
Discount Paper

4. Discount Paper
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5. Bankers Discount Bankers: 360 days in a year
Discount: price is calculated at a discount to the face value.

6. Example: Buy $1,000,000 104 day discount note at 3.42 Sept 14 Dec 27
$1,000,000.
Dec 27
Interest = $
Price =

7. Money Market Yield
To compare to other Money Market Investments

8. Money Market Yield
To compare to other Money Market Investments

9. Straight Yield
To compare to other Money Market Investments

10. Straight Yield
To compare to other Fixed Income Investments

11. Ask Yield
= straight yield for < days
= for > days

12. Treasury Bills Treasury Bills Maturity Days Bid Ask Chg Ask Yield
Sept 20 6
2.67
2.66
0.12
2.70
Dec 27
104
3.43
3.42
0.06
3.50
March13
181
3.77
3.76
0.02
3.89
Wall Street Journal
Ask Yield
© Oltheten & Waspi 2012

13. Exercise Calculate The price at which you would buy the T-Bill
Money Market yield
Ask Yield

14. Treasury Bills Treasury Bills Maturity Days Bid Ask Yield MM Yield Ask
Sept 20 6
2.67
2.66
Dec 27
104
3.43
3.42
3.45
3.50
March 13
181
3.77
3.76
Wall Street Journal
© Oltheten & Waspi 2012

15. Interest at Maturity
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16. Interest at Maturity Discount Paper Interest at Maturity
Face - discount
Face
Face
Face + Interest

17. Interest at Maturity
360 days in a year

18. Example
Principal: $1,000,000
Rate: 4%
Term: 180 days

19. Discount Paper
t = 0
$1,000,000.
t =180
© Oltheten & Waspi 2012

20. Interest at Maturity
t = 180
$1,000,000.
t =0
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21. Money Market Yield Discount Paper Interest at Maturity
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22. Straight Yield Discount Paper Interest at Maturity
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23. Calendar Issues
One year has
360 days
365 days

24. Money Market I