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Suppose the three-month T-bill annualized rate is 2% General Motors Acceptance

Suppose the three-month T-bill annualized rate is 2%. General Motors Acceptance Corporation (GMAC) plans to issue 90-day commercial paper. Their liquidity premium is very low at 0.2% due to this paper being easily marketable and their default risk premium is also below 1.0%. GMAC decides that 0.8% will suffice to give an adequate return above the risk free rate. A tax adjustment of 0.4% is also considered in their return. What is the appropriate yield on GMAC’s commercial paper?

Jan 31 2020 View more View Less

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