1. Money Market Money Market I

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

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

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

5. 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.

6. Chapter 10: Money Markets © Oltheten & Waspi 2012 Example: Buy $1,000,000 104 day discount note at 3.42 Sept 14 $1,000,000. Dec 27 Interest = $ Price =

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

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

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

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

11. Chapter 10: Money Markets © Oltheten & Waspi 2012 Ask Yield = straight yield for < 182.5 days = for > 182.5 days

12. Chapter 10: Money Markets © Oltheten & Waspi 2012 Treasury Bills MaturityDaysBidAskChgAsk Yield Sept 2062.672.660.122.70 Dec 271043.433.420.063.50 March131813.773.760.023.89 Wall Street Journal © Oltheten & Waspi 2012 Ask Yield

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

14. Chapter 10: Money Markets © Oltheten & Waspi 2012 Treasury Bills MaturityDaysBidAskYield MM Yield Ask Sept 2062.672.66 Dec 271043.433.423.453.50 March 131813.773.76 Wall Street Journal © Oltheten & Waspi 2012

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

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

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

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

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

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

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

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

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

24. Money Market I © Oltheten & Waspi 2012