Question

Commerzbank is seeking to invest $100 million short term. It has the choice between buying Euro-CP yielding 6.34% annually and a U.S. bank deposit yielding 6.36% annually, both maturing in 150 days. The Euro-CP yield is calculated on a 360-day year, whereas the U.S. bank deposit yield is calculated on a 365-day year.
a. How much Euro-CP in terms of face value can Commerzbank's $100 million buy?
b. Assuming that all else is equal, which is Commerzbank's preferred investment? Explain.
c. What would be the annual yield on the U.S. bank deposit if it were quoted on a 360-day year?
d. What would be the annual Euro-CP yield if it were quoted on a 365-day year?



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  • CreatedJune 27, 2014
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