Money Market Instruments

There are two types of money market instruments

  1. government T-bills
    • terms of 91, 182 or 364 days
    • large denominations
    • issued at a discount (below face value) and mature at face value
  2. corporate (issued as a negotiated offering to banks or investment dealers to resell at a markup)
    1. commercial paper
      • unsecured (e.g., GM commercial paper)
    2. Acceptance (finance paper)
      • secured debt issued by a non-deposit taking institution (e.g., GMAC)
    3. Banker's Acceptance (BA)
      • short-term corporate debt instrument with bank repayment guarantee
      • e.g., TD Bank BA = GM paper + TD repayment guarantee


Annualized Yield = (100-Price)/100 x 365/(# of days) x 100

Current Yield = (Annual Interest)/(Purchase Price) x 100

  • ignores capital gains and losses

Annual Interest = Face Value x Coupon Rate

Use the Ask price to calculate the yield
- bid price = buyer’s price
- ask price = seller’s price (higher)

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