Money market investments are pure discount securities

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Reference no: EM13850755

Interest on money market investments are pure discount securities. These securities are often quoted on a discount basis.

Please respond to and solve the following:

1) Briefly describe what “pure discount security” means.

2) If a 3 month bill is issued at a 3.625% discount, what price would you pay for one bill if the face value is $100?

3) Refer to question 2 above: what would the annual yield be if you were to roll-over your investment every three months and discount remained the same during this period?

4) Tax question: Suppose you were to by a taxable bond yielding 5.32% and a non-taxable bond yielding 3.7%. After all taxes have been paid, you realize the return for both bonds is identical. Based on this information, what is your marginal tax rate?

PLEASE BE AS DETAILED WITH SOLUTIONS,

Reference no: EM13850755

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