| Course | GF500 Financial Institutions and Markets |
|---|---|
| Unit | Unit 5 |
| Paper type | Money market comparison |
| Length | About 1,100 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF500 Unit 5
Three Ways to Borrow for Ninety Days: A Unit 5 Money Market Instrument Comparison From the Issuer's Side
[Student Name]
Purdue University Global
GF500: Financial Institutions and Markets
Unit 5 Money Market Instrument Comparison
[Instructor Name]
[Date]
The distributor, the rates and every fee are composite and illustrative of conditions with short rates near 5.3 percent; the articles and book cited are real.
The Need
The distributor sells notebooks, binders and classroom supplies to retailers and school districts. Each June it builds inventory for the back-to-school season, and each September its customers pay. The gap requires about $120 million for ninety days. The rest of the year the company needs little outside funding, since its own cash covers ordinary operations. It is profitable, has moderate debt and would likely receive the second-highest short-term ratings, A-2 and P-2, if it sought them.
Option A: Commercial Paper
Commercial paper is short-term unsecured debt sold to money market funds and other investors, usually through a dealer. It is quoted on a discount basis using a 360-day year.
Quote. Ninety-day A-2/P-2 paper at a 5.45 percent discount rate.
Conversion. The price per $100 of face value is 100 minus 5.45 times 90/360, or $98.6375. On $120 million of face value, the company receives $118.365 million and repays $120 million, an interest cost of $1.635 million. Restated as a bond-equivalent yield on a 365-day year, that is about 5.60 percent.
Other costs. Dealer fees of about 5 basis points a year, $15,000 for ninety days; a backup bank line covering the full $120 million, which rating agencies and investors expect, at 0.15 percent a year, $180,000; and rating agency fees of about $120,000 a year.
All-in cost. About 6.68 percent a year on the money received.
Option B: Bank Revolving Credit Line
A revolver lets the company draw and repay as needed up to a limit. Interest is quoted as an add-on rate over the Secured Overnight Financing Rate on a 360-day basis.
Quote. SOFR, assumed at 5.30 percent, plus a margin of 1.50 points, or 6.80 percent; a commitment fee of 0.25 percent a year on the undrawn amount.
Conversion. Drawing $120 million for ninety days costs $2.04 million in interest. The commitment fee on the unused line for the remaining 275 days is about $229,000.
All-in cost. About 7.67 percent a year.
Option C: Receivables Conduit
The distributor could sell its receivables from retailers and districts to a conduit sponsored by a bank. The conduit funds the purchase by issuing asset-backed commercial paper of its own, which carries a top short-term rating because of the receivables behind it and the bank's support.
Quote. Conduit paper at a 5.40 percent discount rate, a program fee of 0.60 percent a year on amounts funded, and an unused fee of 0.30 percent on the facility the rest of the year. The conduit advances 85 percent of eligible receivables, so $120 million of funding needs about $141 million of eligible receivables.
Conversion. Interest of about $1.62 million, a program fee of $180,000 and an unused fee of about $275,000.
All-in cost. About 7.11 percent a year.
Once each quote is converted to the same basis and the cost of keeping each facility open all year is counted, commercial paper is cheapest despite its fixed costs, but it is also the only option whose funding depends on investors showing up on the day the company needs them.
Comparing Risk as Well as Cost
Rollover risk. Commercial paper must be resold every ninety days, or more often, to investors who can decline. In 2007 and 2008, the commercial paper market shrank sharply, and asset-backed paper in particular collapsed as investors fled programs whose collateral they could not assess (Kacperczyk & Schnabl, 2010). A company relying on paper must have its backup line ready, which is why the line's cost belongs in the comparison.
Line availability. A committed revolver is a contractual promise to lend, but research on credit lines shows that banks can restrict access when a borrower's financial condition weakens, often through covenant violations (Sufi, 2009). For this distributor, with steady profits, that risk is modest.
Collateral and operations. The conduit requires daily or monthly reporting on receivables, eligibility tests and a lockbox. It ties up the company's best asset and adds administrative work.
Why the Quote Conventions Matter
A treasurer comparing the raw quotes, 5.45, 6.80 and 5.40 percent, would misjudge the options. Discount yields understate cost because interest is computed on face value while the borrower receives less. Rates on a 360-day year understate cost compared with a 365-day basis. And the facility fees, which do not appear in any quoted rate, add between 0.5 and 1.1 points a year for a ninety-day borrower (Mishkin & Eakins, 2018).
How Sensitive the Ranking Is
The ranking holds across a reasonable range of assumptions but not all of them. If the distributor already kept a revolver for other purposes, the backup line would cost nothing extra, and commercial paper's all-in cost would fall to about 6.1 percent, widening its lead. If its need stretched from ninety days to six months, the fixed costs of the paper program and the conduit would be spread over more borrowing, and both would gain on the revolver. If credit spreads widened in a downturn, tier-two paper would reprice faster than a revolver whose margin is fixed in the contract, narrowing or erasing the paper's advantage exactly when funding is hardest to find.
The fees also say something about who bears risk. The backup line's fee pays a bank to stand ready; the conduit's program fee pays the sponsor for credit support and administration; the revolver's commitment fee pays for the promise to lend. In each case the borrower is buying insurance against being unable to roll its funding, and the price of that insurance is part of the cost of borrowing short.
Ranking and Recommendation
On cost: commercial paper at about 6.68 percent, the receivables conduit at about 7.11 percent and the revolver at about 7.67 percent. On a ninety-day draw of about $118 million, choosing paper over the revolver saves roughly $290,000 a season.
On reliability: the revolver first, the conduit second and commercial paper last.
The recommendation is to establish a commercial paper program with the $120 million backup line, which serves as the revolver if the paper market closes. The arrangement captures most of the cost saving while keeping a committed fallback. If the company receives only a third-tier rating, the paper market for its notes would be thin and expensive, and the revolver alone would be the better choice.
References
Kacperczyk, M., & Schnabl, P. (2010). When safe proved risky: Commercial paper during the financial crisis of 2007-2009. Journal of Economic Perspectives, 24(1), 29-50. https://doi.org/10.1257/jep.24.1.29
Mishkin, F. S., & Eakins, S. G. (2018). Financial markets and institutions (9th ed.). Pearson.
Sufi, A. (2009). Bank lines of credit in corporate finance: An empirical analysis. The Review of Financial Studies, 22(3), 1057-1088. https://doi.org/10.1093/revfin/hhm007
What the GF500 Unit 5 assignment asks for
Unit 5 of GF500 asks you to compare money market instruments rather than simply define them. Choose a perspective, investor or borrower, and a concrete need with an amount and a term. For each option, state the quoted rate and its convention, whether discount or add-on and a 360-day or 365-day year, then convert every quote to the same basis. Add the costs that never appear in the quoted rate, such as dealer fees, backup lines, commitment fees and program fees, and show the all-in cost. Cost is only half the comparison, so also assess risk: whether the funding can disappear, whether a bank can restrict access and what collateral or reporting each option demands. Test whether the ranking changes under different assumptions. End with a recommendation tied to the need. Cite sources on the commercial paper market and bank credit lines in APA 7.
How this GF500 Unit 5 example is built
A paragraph on the distributor's seasonal cash cycle opens the example, which explains why the need lasts ninety days. Commercial paper is then priced at $98.6375 per $100 of face, giving $1.635 million of interest and a bond-equivalent yield near 5.60 percent before dealer, backup line and rating fees lift it to about 6.68 percent. The revolver's draw costs $2.04 million plus a commitment fee on the unused 275 days. The conduit advances 85 percent of eligible receivables, so it needs about $141 million of them. The highlighted sentence admits that the cheapest option is also the one that depends on investors appearing on the day. Risk sections cite Kacperczyk and Schnabl on the 2007 to 2009 collapse of asset-backed paper and Sufi on banks restricting credit lines. A sensitivity section and the ranking follow, with a fallback if the rating comes in lower.
Where the points sit in the GF500 Unit 5 rubric
Credit in this comparison goes first to correct conversions. Each quoted rate must be put on one basis with the arithmetic shown, and graders check that discount yields are not compared directly with add-on rates. The second large share rewards counting the hidden costs of keeping each facility open, which is where many papers rank the options wrongly. GF500 instructors also want risk discussed alongside cost, with each risk tied to evidence such as the 2008 commercial paper contraction or research on credit line access. A sensitivity test showing when the ranking flips earns credit for judgment. The recommendation should follow from both cost and reliability and name a condition under which it would change. Professional tone, tidy headings and APA 7 entries for Kacperczyk, Schnabl and Sufi make up the final points.
Common GF500 Unit 5 mistakes, and how to avoid them
The biggest error in GF500 Unit 5 is ranking instruments by their quoted rates, which mixes discount and add-on conventions and 360-day and 365-day years. A close second is ignoring facility fees: commercial paper looks cheapest on the quote alone, but its backup line and rating fees add meaningful cost for a short seasonal need. Some papers list every instrument in the textbook, including ones a corporate borrower cannot use, instead of comparing realistic options. Risk is often a single sentence. Others recommend the cheapest option without asking what happens if the market closes on the rollover date. If your prompt takes the investor's side, comparing Treasury bills, certificates of deposit and repurchase agreements for a cash reserve, the same discipline applies: convert to one basis, add the costs and taxes, then weigh liquidity and credit risk.
Get a GF500 Unit 5 example written to your instructions
Four instruments or six, the comparison covers whatever your GF500 Unit 5 prompt lists, so send it with the rubric. Yields are converted to one basis and the ranking is tied to a stated cash need. Your first sample costs nothing and generally lands within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
More GF500 papers and MS in Finance samples
- GF500 Unit 1: Credit Union Spread Discussion Post
- GF500 Unit 2: Flow of Funds Brief on a 401(k) Dollar
- GF500 Unit 3: Interest Rate Problem Set
- GF500 Unit 4: Inverted Yield Curve Analysis
- GF500 Unit 6: Seminar Reflection
- GF500 Unit 7: Bank Balance Sheet Analysis
- GF500 Unit 8: Securities Market Case Study
- GF500 Unit 9: Regulatory Response Memo
- GF500 Unit 10: Market Sector Appraisal
GF500 Unit 5 questions, answered
Where can I find a free GF500 Unit 5 sample paper?
A complete GF500 Unit 5 money market comparison is available here, pricing commercial paper, a bank revolver and a receivables conduit for a ninety-day need, with risk analysis and APA 7 references.
Why does a discount rate understate the cost of commercial paper?
Interest on a discount quote is figured on face value, but the borrower receives less than face. Dividing the same interest by the smaller amount actually received, and using a 365-day year, gives a higher and more honest rate.
Why keep a backup line if commercial paper is cheaper?
Because paper must be resold every few weeks, and investors can refuse. The backup line guarantees the company can repay maturing paper if the market closes, and investors and rating agencies expect it.
When would the revolver be the better choice?
If the company received only a third-tier short-term rating, its paper would sell to few investors at high rates, and the revolver's reliability would outweigh the cost difference.
What is a receivables conduit?
A vehicle sponsored by a bank that buys a company's receivables and funds the purchase by issuing asset-backed commercial paper. The company gets cash against its customer invoices without issuing paper in its own name.