BU283 Lecture Notes - Lecture 4: Commercial Paper
Document Summary
Default risk: failure to fulfill an obligation, bonds from issuers with a higher default probability (lower ratings) have higher yield than those with a lower default probability (higher ratings, called default risk premium. Commercial paper and t-bills are zero coupon bonds (two biggest categories), most money market securities are zero coupon bonds. Owner of zero coupon bond has long position, issuer has a short position. Commercial paper has a higher yield than t-bills. Find the yield, and then multiply the price by that yield to get first year implicit interest. New year base year price/base year price.
