Bodie, Kane, and Marcus Essentials of Investments 12e Chapter 2 PDF

Chapter Asset Classes and 2 Financial Instruments Bodie, Kane, and Marcus Essentials of Investments 12th Edition  2.1 The Money Market Money markets Subsector of the fixed-income market Short-term Hi...

Chapter Asset Classes and 2 Financial Instruments Bodie, Kane, and Marcus Essentials of Investments 12th Edition  2.1 The Money Market Money markets Subsector of the fixed-income market Short-term Highly liquid Low risk Often have large denominations Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill. 2  2.1 The Money Market: Treasury Bills Treasury Bills Issuer: Federal Government Denomination: Commonly $10,000; $1,000 Maturity: 4, 13, 26 or 52 Weeks Liquidity: High Default Risk: None Interest Type: Discount Taxation: Owed: Federal; Exempt: State, Local Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill. 3  2.1 The Money Market: Treasury Bills Bank Discount Rate (T-bill quotes) $10, 000 − P 360 rBD =  $10, 000 n rBD = bank discount rate P = market price of the T-bill n = number of days to maturity Example: 90-day T-bill, P = $9,875 $10, 000 − $9,875 360 rBD =  =.05 = 5.00% $10, 000 90 Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill. 4  2.1 The Money Market: Certificates of Deposit (CDs) Certificates of Deposit Issuer: Depository Institutions Denomination: Any, $100,000 or more marketable Maturity: Varies, Typically 14-day Minimum Liquidity: High for CDs