This article appeared on the WSJ Internet site on Oct. 3.  Assuming that the article was responding to current information, what do you think the WSJ was reporting regarding the stock market at that time on Oct. 3?  Use the information in the article and the theories described in class to explain your answer.  Your answer will be evaluated in the context of how well you use the information in the article and the understanding of the theories of interest rate determination that you demonstrate.  Other than that, it is irrelevant as to whether you actually remember what the stock market did on Oct. 3.

Ans:  The following points are relevant:

Treasury Quotes as of midafternoon Friday, October 6, 2000 from the WSJ.  Keep in mind that these rates are valid for immediate, with one day allowed for settlement (however, given that Monday is Yom Kippur and the markets are closed, settlement will take place on Tuesday).

Maturity Days
Bid Asked
Oct 12 '00 2 5.99 5.91
Oct 19 '00 9 5.83 5.75
Oct 26 '00 16 5.89 5.81
Nov 02 '00 23 5.92 5.84
Nov 09 '00 30 5.94 5.90
Nov 16 '00 37 5.92 5.88

Money Rates For Friday, October 6 (assume these are also midafternoon rates).  (also from the WSJ Internet edition)

COMMERCIAL PAPER: placed directly by General Electric Capital Corp.: 6.48% 30 to 37 days; 6.46% 38 to 67 days; 6.43% 68 to 96 days; 6.51% 97 to 121 days; 6.46% 122 to 160 days; 6.41% 161 to 201 days; 6.36% 202 to 239 days; 6.33% 240 to 270 days.

Suppose you have a million dollars to invest as of midafternoon Friday, Oct. 3, 2000 .  You wish to invest those million dollars for 37 days.  How much would you have on hand at the end of 37 days, if you invest in GEC Corp. commercial paper.  (Assume that commercial paper rates are quoted in bank-equivalent yields, and are ask quotes, and that Treasury quotes are banker's discount.)