Question

Define and Discuss the followings

1) Commercial Paper (What are the characteristics of commercial paper, what period of time is commercia paper issued for, etc.)

2) Municipal Bonds and taxation

3) Term Structure of Interest Rated aka the Yield Curve

Answer 1

1. Commercial papers are money market instruments which are used by the the companies in order to raise loans for the the shorter period of time and it will be serving as a method to find out the working capital loan and it is backed by the issuing bank or companies who are promising to pay the face amount on the maturity date which are specified on the note.

These commercial paper are generally unsecured in nature and they are often issued for a lower period of time and there are actually maturity period which revolve around 90 days to 270 days.

2. Municipal bonds are those bonds which are issued by the local governmennlt it other territories Government and it will be backed by government so it is also almost risk free & they are used to finance public projects such as the roads schools and they are tax free so any tax arising out of income on the Municipal bonds will be that they are typically exempt from Federal income tax.

3. Yield curve is a reflection of relationship which has been plotted on the graph between the short-term interest rate and the long-term interest rate and when there would be a upward-sloping yield curve it will be reflecting that economy is on the bullish territory and it will be recovering on the upside whereas inverted yield curve is always a sign of recession.