Finance-Interest on money market investments are pure discount securities

| January 30, 2017

Question
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:

Briefly describe what “pure discount security” means.
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?
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?
Tax question: Suppose you were to buy 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?

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