Point counter-point

QA:
4, Only well-known, credit-worthy firms issue commercial paper. Typically finance companies
and bank holding companies are major issuers of commercial paper. If a firm frequently uses
commercial paper, an in-house department can reduce expenses. The main criteria are the
frequency that a company issues commercial paper.
5, Some investors rely heavily on the rating to assess credit risk; also money market funds
can invest only in top tier or second tier rated commercial paper, so they rely heavily on the
agency's ratings
6, During a recession investors tend to shift to less risky investments like T-bills in a flight to
quality. This creates a great differential between yields because the money market securities
must provide a larger risk premium to attract investors.
8, Repurchase Agreements would have a lower annualized yield than commercial paper,
because they are backed by assets if the company was not able to pay the investor back.
9, A) Selling the acceptance creates reliable financing for the exporter.
B) The acceptance allows the importer to receive goods without sending immediate
payment.
C) The commercial bank signing the acceptance uses it as an investment and receives a
premium for providing necessary credit.
D) Investors use these acceptances as short-term investments similar to NCDs in risk.
11, The interest rate a firm must pay on commercial paper tends to be much lower, and the
firm just issues more commercial paper when the old ones are about to reach maturity,
effectively creating cheap long-term funding
Problem:
4, Repo rate: (Sold Price-Purchase Price/Purchase Price)*(360/time held) Repo rate=
((5000000-4900000)/4900000)*(360/40) Repo rate= 18.367% or 18.37 %
5,

6,
10, Yncd = [(SP - PP + Interest)/PP]
= [1,000,000 - 980,000 +45,000)/980,000]
= 6.63%