Short Term Lending and BorrowingBrealey and Myers Sixth Edition Slides by Chapter 32... ©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill Topics Covered... Sources of Short Term
Trang 1 Short Term Lending and Borrowing
Brealey and Myers Sixth Edition
Slides by
Chapter 32
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Irwin/McGraw Hill
Topics Covered
Trang 3Sources of Short Term Financing
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Cost of Short-Term Loans
Simple Interest
Amount of loan X annual interest rate
number of periods in the year
Trang 5Cost of Short-Term Loans
Simple Interest
Effective annual rate
Amount of loan X annual interest rate
number of periods in the year
) ( 1 + quoted annual interest rate n n - 1
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Irwin/McGraw Hill
Cost of Short-Term Loans
Discount Interest
)
(
Face value of loan X 1 - number of periods in the year quoted annual interest rate
Trang 7Calculating Yields
Example
In January of 1999, 91-day T-bills were issued at a discount of
4.36%
1 Price of bill = 100 - 91/360 x 4.36 = 98.898
2 91-day return = (100 - 98.898) / 98.898 = 1.11%
3 Annual return = 1.11 x 365/91 = 4.47% simple interest
or
(1.0111) 365 / 91 - 1 = 4.55% compound interest
Trang 8©The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw Hill
Money Market Investments
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Investments Payoff Prob of Payoff Project 1 -12 15 1
Project 2 -12 24 or 0 5 or 5
Example - Henrietta Ketchup
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Irwin/McGraw Hill
Credit Rationing
Expected Payoff Expected Payoff
Project 2 (.5x10) + (.5x0) = +5 5 x (24-10) = +7
Example - Henrietta Ketchup
Trang 11Credit Rationing
Project 2 (.5x5) + (.5x0) = +2.5 5 x (24-5) = +9.5
Example - Henrietta Ketchup