| Course | MT481 Financial Markets |
|---|---|
| Unit | Unit 2 |
| Paper type | Market structure comparison |
| Length | About 850 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT481 Unit 2
Sixty Days or Ten Years: An MT481 Unit 2 Market Structure Comparison of Commercial Paper and a Corporate Note
[Student Name]
Purdue University Global
MT481: Financial Markets
Unit 2 Market Structure Comparison
[Instructor Name]
[Date]
Pinecrest Industrial Supply, its figures and the assumed rates are composite; the sources cited are real.
The Borrower and the Question
Pinecrest Industrial Supply, a composite distributor of maintenance and repair parts with about $6 billion in annual sales, needs $400 million to fund higher inventory and receivables after acquiring a regional competitor. Its treasurer has two realistic choices. It can sell commercial paper, unsecured promissory notes of up to 270 days sold to money market investors, rolling it over as each issue matures. Or it can sell a ten-year note in the corporate bond market. Both raise the same money. The markets they belong to differ in almost every other way.
The Comparison Table
One table carries the comparison, with a column for each market and three rows: term, who takes part and who bears the risk. The rates are assumed for illustration: commercial paper at 5.35 percent for sixty days, and a ten-year note at a 5.90 percent coupon, priced at par.
Row One: Term
Commercial paper is a money market instrument. Pinecrest's paper would mature in sixty days and be replaced by new paper, six times a year. The ten-year note is a capital market instrument; Pinecrest would borrow once and repay in ten years. Mishkin (2019) defines the money market as the market for debt maturing within a year and the capital market as the market for longer-term debt and equity, and the two instruments sit on either side of that line.
Row Two: Who Takes Part
Commercial paper is bought mostly by money market funds, corporate treasurers parking cash and bank trust departments, investors who want safety and quick access to their money. Only issuers with top short-term credit ratings can sell it easily, and most programs are backed by a bank credit line that investors can rely on if the issuer cannot roll the paper. Dealers place the paper and make a market in it, but investors generally hold it to maturity.
The ten-year note is bought by insurance companies, pension funds and bond mutual funds, investors who want income over many years and can hold through price swings. It is sold through underwriters, registered with federal securities regulators and trades afterward in an over-the-counter market among dealers.
Row Three: Who Bears the Risk
The cost difference first. Interest on $400 million of paper at 5.35 percent is about $21.4 million a year; on the note at 5.90 percent, about $23.6 million. The $2.2 million gap is the price Pinecrest pays for shifting risk onto the note's investors, and the comparison treats it as a price, not a waste.
Interest rate risk falls mainly on the lenders. If rates rise one percentage point, sixty-day paper loses only about 0.16 percent of its value, roughly $660,000 across the issue, because it matures so soon. The ten-year note loses about 7.14 percent, roughly $28.6 million, for whoever holds it.
If rates climb a point, the paper's buyers lose about $660,000 and the note's buyers about $28.6 million.
The borrower's side reverses the picture. With paper, Pinecrest must find buyers for $400 million six times a year, $2.4 billion of issuance annually. If rates rise, its interest cost rises within weeks. Worse, if money market investors lose confidence, as they did in September 2008 when commercial paper markets froze (Kacperczyk & Schnabl, 2010), Pinecrest could be unable to roll the paper at any rate and would have to draw on its bank line in a hurry. With the note, the rate is fixed for ten years and the money cannot be withdrawn.
What the Comparison Shows
The cheaper instrument shifts rollover and rate risk to the borrower; the more expensive one shifts price risk to the lenders. Neither is simply better. Fabozzi (2015) describes the term structure of interest rates as compensation for the different risks of short and long lending, and the $2.2 million gap is that compensation in a single company's budget.
A Recommendation for Pinecrest
The acquisition created long-lived needs: more inventory and receivables that will not disappear in sixty days. Funding a permanent need with sixty-day money leaves the company exposed to a market freeze at the worst moment. The comparison therefore recommends funding most of the $400 million, about $300 million, with the ten-year note, and using commercial paper only for the seasonal swing in inventory, about $100 million, which rises before the spring maintenance season and falls in summer. That matches each instrument's term to the need it funds, a principle Mishkin and Fabozzi both describe in different words.
Limits
The rates are assumed, and the actual spread between paper and notes changes with the yield curve; when short rates exceed long ones, the note may even cost less. Pinecrest's credit rating also matters: a downgrade would close the commercial paper market to it far faster than the bond market.
References
Fabozzi, F. J. (2015). Bond markets, analysis, and strategies (9th ed.). Pearson.
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. (2019). The economics of money, banking, and financial markets (12th ed.). Pearson.
What the MT481 Unit 2 assignment asks for
Unit 2 of MT481 asks you to compare two financial markets by examining one borrower's choice between them. Set up a single comparison with the same borrower and amount, so the markets differ and nothing else does. Use a table with rows for term, participants and who bears risk. Explain each row with specifics: who buys, how securities are sold and traded and what regulations apply. Compute the cost difference and the change in value for a rate move, showing who bears that risk. Consider the borrower's side too, such as rollover and access in a crisis. Close with a recommendation that matches funding to need. Many instructors also want the limits, such as the shape of the yield curve or credit ratings. About five pages built around one table is a common format for this comparison.
Inside the MT481 Unit 2 example
Pinecrest's comparison introduces the $400 million need and the two choices. The table's rows are then taken in order. Term places paper in the money market and the note in the capital market, citing Mishkin. Participants contrasts money funds and treasurers with insurers and pension funds, and dealer placement with underwritten registration. The risk row computes annual interest for each, the $660,000 and $28.6 million value changes, with a highlighted sentence setting the two losses side by side, and the borrower's rollover burden with the 2008 freeze described by Kacperczyk and Schnabl. A section reads the trade with Fabozzi on term premiums. The recommendation funds $300 million with the note and $100 million of seasonal need with paper. Limits note an inverted curve and a ratings downgrade.
Reading the MT481 Unit 2 grading rubric
Market comparisons earn their marks by holding the borrower constant and showing exactly how the markets differ. Instructors credit a clear table with rows that matter and explanations that go beyond definitions. Quantifying the cost difference and the value change for a rate move turns description into analysis. Recognizing that the cheaper market shifts risk to the borrower, through rollover and access, is often the most rewarded insight. Referring to a real episode of market stress, such as 2008, adds credibility. A recommendation that matches each instrument's term to the need it funds shows practical judgment. Acknowledging conditions that would change the comparison, such as the yield curve's shape, shows awareness. Dated or clearly assumed figures help the grader.
Common MT481 Unit 2 mistakes, and how to avoid them
Weak Unit 2 papers define money and capital markets without applying the definitions to a decision. Another frequent problem compares instruments of different sizes or issuers, so differences cannot be attributed to the market. Students often say the cheaper option is better without asking who bears the risk. Rollover risk is commonly missed. Rate sensitivity is rarely computed. Recommendations sometimes choose one instrument for everything. Before submitting, check that your two options differ only in the market used. Then calculate what a one-point rate change does to each, and write one sentence on who absorbs that change. If your recommendation funds a long-term need with short-term money, explain what happens if the short-term market closes.
Get an MT481 Unit 2 example written to your instructions
Unit 2 prompts pair different markets: some set money against capital markets, others add stocks or derivatives. Whichever pair the prompt names, a first MT481 comparison is written at no charge, each row assigning risk to a named party and each rate given a date and a bracket, laid out as the rubric asks and back in 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.
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MT481 Unit 2 questions, answered
Can a mid-size company actually issue commercial paper?
Only if it earns top short-term credit ratings and keeps a backup bank line, which is why the market is dominated by large firms and financial institutions. Many smaller companies meet the same short-term need through a bank credit line instead. If your case company is small, the comparison can set a bank line against the bond, stating why paper is out of reach.
Should the comparison include the size of each market?
It strengthens the paper if the figures are dated and sourced, such as commercial paper outstanding from the Federal Reserve's release and corporate bond totals from an industry data compiler. Size tells readers how deep each market is, which bears on how easily a borrower can refinance. Keep the numbers brief and let them support the participants row rather than replace it.
Is a Treasury bill a better money market example than commercial paper?
It depends on the prompt. Bills represent the deepest money market and carry no credit risk, while commercial paper shows a private borrower facing rollover risk, which is closer to the question of who bears what. Many strong comparisons mention bills as the benchmark and use paper as the example, since paper yields sit above bill yields for reasons worth explaining.
Where can I find a free MT481 Unit 2 sample paper?
The full MT481 Unit 2 comparison is printed here, setting $400 million of commercial paper against a ten-year note for one composite distributor.
Why does the MT481 Unit 2 sample favor the note for most of the need?
The borrowing funds permanent inventory and receivables, and relying on paper that must be resold six times a year risks being shut out in a market freeze.