1. ©2012 McGraw-Hill Ryerson Limited 1 of 39 ©2012 McGraw-Hill Ryerson Limited 3.Define the various marketable securities available for investment by the firm and calculate the yield on these instruments. (LO3) 4.Characterize accounts receivable as an investment resulting from the firm’s credit policies, outline the considerations in granting credit, and evaluate a credit decision that changes credit terms to stimulate sales. (LO4) Learning Objectives

2. ©2012 McGraw-Hill Ryerson Limited 2 of 39 Marketable Securities Excess cash should be invested in short-term securities (marketable securities). Factors to consider in choosing these securities: yield maturity minimum investment required safety marketability Yield (return) on marketable securities : LO3

3. ©2012 McGraw-Hill Ryerson Limited 3 of 39 Figure 7-2 An examination of yield and maturity characteristics LO3

4. ©2012 McGraw-Hill Ryerson Limited 4 of 39 ©2012 McGraw-Hill Ryerson Limited Table 7-3 Hierarchy of money market instruments and rates LO3 InvestmentMaturity* Minimum AmountSafetyMarketability Yield Mar. 22, 1990‡ Yield Apr. 29, 2011 Prime rate (best corporate customers)14.253.00 Bank rate (Bank of Canada’s rate to banks, dealers)13.381.25 Treasury bills6 m.$1,000Excellent 13.251.08 LIBOR (London Interbank Offered Rate) 3 m.100,000GoodExcellent12.940.27 Commercial (corporate) paper3 m.100,000GoodFair13.331.07 Bankers’ acceptances3 m.25,000Good 13.271.12 Provincial government treasury bills3 m.25,000Excellent 3.181.01 Federal government treasury billsъ3 m.1,000Excellent 13.130.92 Overnight repoDay100,000Excellent --1.0008 Overnight financing rate (call money)Day100,000Excellent --.9972 Money market depositsOpen500ExcellentNone10.151.00 Term deposits and GICs905,000GoodNone†12.750.50 Savings accountsOpenNoneExcellentNone†8.750.00-1.25 * Many of these securities can be purchased with different maturities than those indicated. † Though not marketable, these investments are highly liquid and can often be withdrawn without penalty. ‡ Quoted yields are often for wholesale amounts above $1 million ъ In the summer of 1981, 3-month Treasury Bills offered yields in excess of 20%