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3 April, 01:05

You can buy commercial paper of a major u. S. Corporation for 495000 $ the paper has face value of 500000 $ and in 45 days from maturity calculate the Discount yield and bond equivalent yield on the commercial paper

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  1. 3 April, 04:11
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    Discount yield is 8%

    Bond equivalent yield is 8.19%

    Explanation:

    The discount yield on the commercial paper is calculated as:

    (($500,000 - $495,000) / $500,000) x (360/45)

    = ($5,000/$500,000 x (360/45)

    = 0.01 x 8

    = 0.08

    = 8%

    And bond equivalent yield is calculated as:

    (($500,000 - $495,000) / $495,000) x (365/45)

    = ($5,000/$495,000) x 8.11

    = 0.0101 x 8.11

    = 0.0819

    = 8.19%
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