Problem:
The treasurer of a large corporation wants to invest $36 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 4.48 percent; that is, the EAR for this investment is 4.48 percent. However, the treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills and CDs she has already bought.
Required:
Question: If the term of the instrument is 123 days, what are the bond equivalent and discount yields on this investment?
Note: Provide support for your rationale.