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# Reading 48: Working Capital Management-LOS e 习题精选

Session 11: Corporate Finance

LOS e: Compute and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company's short-term investment policy guidelines.

A 91-day Treasury bill has a holding period yield of 1.5%. What is the annual yield of this T-bill on a bond-equivalent basis?

 A) 6.02%.
 B) 6.65%.
 C) 6.24%.

BEY = 1.5% × (365/91) = 6.02%.

A 30-day bank certificate of deposit has a holding period yield of 1%. What is the annual yield of this CD on a bond-equivalent basis?

 A) 11.83%.
 B) 12.00%.
 C) 12.17%.

The bond-equivalent yield is calculated as the holding period yield times (365 / number of days in the holding period). BEY = 1% × (365/30) = 12.17%.

A firm is choosing among three short-term investment securities:

Security 1: A 30-day U.S. Treasury bill with a discount yield of 3.6%.
Security 2: A 30-day banker’s acceptance selling at 99.65% of face value.
Security 3: A 30-day time deposit with a bond equivalent yield of 3.65%.

Based only on these securities’ yields, the firm would:

 A) prefer the U.S. Treasury bill.
 B) prefer the banker’s acceptance.
 C) prefer the time deposit.

We can compare the yields of these securities on any single basis. The preferred basis is the bond equivalent yield.

Security 1 = discount is 3.6%(30 / 360) = 0.3%
BEY = (0.3 / 99.7) (365 / 30) = 3.661%

BEY of Security 2 = (0.35 / 99.65) × (365 / 30) = 4.273%

BEY of Security 3 = 3.65%

A banker’s acceptance that is priced at \$99,145 and matures in 72 days at \$100,000 has a(n):

 A) discount yield greater than its bond equivalent yield.
 B) money market yield greater than its discount yield.
 C) bond equivalent yield greater than its effective annual yield.

The money market yield is the holding period yield times 360/72 and is always greater than the discount yield which is the actual discount from face value times 360/72, since the holding period yield is always greater than the percentage discount from face value. A security’s discount yield and its money market yield are always less than its bond equivalent yield, and its effective annual yield is always greater than its bond equivalent yield.

Assume that a 30-day commercial paper security has a holding period yield of 0.80%. The bond equivalent yield of this security is:

 A) 9.73%.
 B) 9.60%.
 C) 10.12%.

BEY = HPY × (365/days)

BEY = 0.80% × (365/30) = 9.73%

Which yield measure is the most appropriate for comparing a company’s investments in short-term securities?

 A) Money market yield.
 B) Bond equivalent yield.
 C) Discount basis yield.

When evaluating the performance of its short-term securities investments, a company should compare them on a bond equivalent yield basis.

An investment policy statement for a firm’s short-term cash management function would least appropriately include:

 A) a list of permissible securities.
 B) information on who is allowed to invest corporate cash.
 C) procedures to follow if the investment guidelines are violated.

An investment policy statement typically begins with a statement of the purpose and objective of the investment portfolio, some general guidelines about the strategy to be employed to achieve those objectives, and the types of securities that will be used. A list of permitted securities for investment would be limited and likely too restrictive. A list of permitted security types is appropriate and can provide the necessary flexibility to increase yield within the safety and liquidity constraints appropriate for the firm.

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