Rsm 230 Assignment 1

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Question 1:

i) 91 Day Treasury Bill – it is a government issued debt obligation that matures in 91 days. It is sold at a discount and the buyer is paid the face value at maturity. The yield is the difference between the discounted price and the face value. ii) 90 Day Commercial Paper – it is a promissory note issued by a company that matures in 90 days. In case the issuing company defaults, the buyer has no recourse. Similarly to a treasury bill, commercial paper is also sold at a discount. iii) 90 Day Bankers Acceptance – it is a short term corporate paper that company sells to its bank that guarantees it and sells it again to the end user. This is used when the buyer is uncertain about the risk of default by the issuer. iv) BBB long term Corporate Bond – it is a long-term debt obligation issued by a company that has been rated as having “adequate capacity to meet financial commitments, but more subject to adverse economic conditions” by Standard and Poor’s. Although they are priced with quoted base value of 100, they may be sold at either a discount or a premium. v) Prime Rate – it is the base rate on which a margin is added by the lending bank to calculate one’s financing charge. vi) LIBOR – LIBOR stands for London Interbank Offer Rate. It is the rate that is charged when banks borrow loans in the short-term interbank market.

Question 2:


| 3 month Treasury Bill Rate (%)| 3 month Bankers’ Acceptance Rate (%)| 3 month Prime Corporate Paper Rate (%)| Bank Rate (%)| Prime Rate (%)| Government of Canada Marketable Bonds, over 10 years (%)| December 31, 2007| 3.82| 4.71| 4.81| 4.50| 6| 4.10|

December 31, 2008| 0.83| 1.41| 2.22| 1.75| 3.50| 3.45| December 31, 2009| 0.19| 0.33| 0.37| 0.50| 2.25| 4.09| June 30, 2010| 0.50| 0.77| 0.73| 0.75| 2.50| 3.59|


 | Bankers Acceptance and Treasury Bills Spread (in BPs)| Prime Corporate Paper and Treasury Bills Spread (in BPs)| Govt....
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