Miller Motorworks needs to borrow money to buy inventory which will be sold in 6 months. Please advise the company which one of the following financial instruments the company should issue to raise the fund to pay for the inventory.  Explain your answer including why the company should issue the recommended instrument and why the company should NOT issue the other two instruments.  

Commercial paper
Corporate Bonds
Treasure notes

b) Assume Miller Motorworks currently has a commercial paper outstanding that matures in 30 days. The face value of the paper is $5,000,000 and it is currently selling for $4,990,000. What is the yield to maturity p.a. of this paper?  

c) Assume Miller Motorworks has issued a bond with a face value of $1000 and a term to maturity of 5 years. The coupon rate of this bond is 8% p.a. and the coupons are paid semi-annually. If your required rate of return on this bond is 8.5% p.a., without calculation briefly explain if the price you are willing to pay for this bond would be higher, lower or the same as the face value.  

d) Assume an investor bought the bond at the face value. After holding it for 2 years, he was able to sell it for $1100. What was his holding period yield p.a.

Answer rating: 100% (QA)

acompany should issue commercial papercompany requires short term debtso commercial paper is suitable for that corporate bonds are issued for long term debtits minimum maturity period is one yearSo it is not useful here treasury notes are issued by government and it is long term debt ... View the full answer