The treasurer of a large corporation wants to invest $47 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 3.83 percent; that is, the EAR for this investment is 3.83 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 109 days, what are the bond equivalent and discount yields on this investment

Bond equivalent = 3.78%

Discount yield = 3.73%

Explanation:

Explanation:

Given the following :

Current price = $47 million

Effective annual rate (EAR) = 3.83% = 0.0383

TERM of instrument = 109 days

Bond equivalent yield formula:

[(face value - Current price) /current price] × 365/term

Face value= current price × (1 + EAR)^term/365

= $47,000,000×(1+0.0383)^(109/365)

= $47,000,000 × (1.0383)^0.298630

= $47,530,496.

Bond equivalent yield :

[(47,530,496 - 47,000,000)/47,000,000]×(365/109)

=[$530,496 / $47,000,000] × 3.34862385

= 0.0377964

= 3.78%

Discount yield :

Discount yield uses 30-days a month which equals 360-days a year.

Discount yield formula:

[(face value - Current price) /current price] × 360/term

Discount yield :

[(47,530,496 - 47,000,000)/47,000,000]×(360/109)

=[$530,496 / $47,000,000] × 3.3027522

= 0.0372786

= 3.73%

= 3.73%

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1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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