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Discount Rate of Return & Investment Rate of Return

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1. What is the difference in basis points between the discount rate of return (DR) and the investment rate of return (IR) on a 10 million commercial paper note purchased at a price of 9.85 million and scheduled to mature in 25 days?

2. A commercial paper note with 1 million par value and maturing in 60 days has an expected DR of 6%. What was its purchase price? What is this note's expected coupon-equivalent yield (IR)?

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Solution Preview

1.
Par value = 10 million
Purchase price = 9.85 million
Days to maturity =25
IR = (Par value - Purchase price / Purchase price) X (365 / Days to maturity)
IR = ...

Solution Summary

The solution determines the discount rate of return and investment rate of return.

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