Fundamentals of corporate finance brealey myers marcus 7th edition solutions manual
Short Term Lending and Borrowing Principles of Corporate Finance Brealey and Myers Sixth Edition...
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Short Term Lending and Borrowing Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 32 ©The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill
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© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Sources of Short Term Financing Money Markets Commercial paper Secured loans Eurodollars
Transcript of Short Term Lending and Borrowing Principles of Corporate Finance Brealey and Myers Sixth Edition...
Short Term Lending and Borrowing
Principles of Corporate FinanceBrealey and Myers Sixth Edition
Slides by
Matthew Will Chapter 32
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 2
Topics Covered
Short-Term Lending Money Market Instruments Floating Rate Preferred Stock Short Term Borrowing
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 3
Sources of Short Term Financing Money Markets Commercial paper Secured loans Eurodollars
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 4
Cost of Short-Term Loans
Simple Interest
Amount of loan X annual interest rate
number of periods in the year
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 5
Cost 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 raten
n - 1
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 6
Cost of Short-Term Loans
Discount Interest
)(Face value of loan X 1 - quoted annual interest ratenumber of periods in the year
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 7
Calculating 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
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
32- 8
Money Market Investments
US Treasury Bills Federal Agency Securities Short-Term Tax-Exempts Bank Time Deposits and CDs Commercial Paper Medium Term Notes Bankers’ Acceptances Repos
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
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Credit Rationing
Investments Payoff Prob. of PayoffProject 1 -12 15 1Project 2 -12 24 or 0 .5 or .5
Example - Henrietta Ketchup
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
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Credit Rationing
Expected Payoff Expected Payoffto Bank to Ms. Ketchup
Project 1 110 15Project 2 (.5x10) + (.5x0) = +5 .5 x (24-10) = +7
Example - Henrietta Ketchup
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
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Credit Rationing
Expected Payoff Expected Payoffto Bank to Ms. Ketchup
Project 1 5 10Project 2 (.5x5) + (.5x0) = +2.5 .5 x (24-5) = +9.5
Example - Henrietta Ketchup
