CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

Commercial Paper and Short-Term Funding for Corporates

Updated 7 October 2026 · Fact-checked

Commercial paper (CP) is short-term, unsecured, discount-priced debt issued by large, creditworthy corporations and backed by a bank credit line. Corporates also fund short term through repos, bank credit lines and bank loans. To answer exam questions, match the instrument to its features: maturity, security, who issues, and how it is priced.

Understand Commercial Paper and Short-Term Funding

Commercial paper is a short-term, usually unsecured promissory note issued by large corporations and financial institutions to fund working capital. It is sold at a discount to face value and repaid at face value on maturity. The difference is the investor's interest. Because it is unsecured, only issuers with strong credit can use it, and most issuers hold a back-up line of credit from a bank.

In the US, CP is typically issued with a maturity of 270 days or less so that it qualifies for the exemption from SEC registration. Paper with a longer maturity can be issued, but it would have to be registered. That is why most CP is shorter than 270 days. US CP is typically short, often 30 to 90 days or less. It is placed through dealers or sold directly by the issuer (direct-issued paper, common for large financial companies). Dealer-placed paper is sold through banks and securities firms.

Eurocommercial paper (ECP) is issued in the international market outside the home market of the currency, and it is not limited to euros. Key differences from US CP: maturities can be longer, issues can be in many currencies, and ECP can be interest-bearing as well as discount-priced. Issuance is mainly dealer-placed, and maturity can be tailored to investor needs. Think of ECP as more flexible and US CP as more standardised.

Other short-term funding. A bank credit line (committed or uncommitted) lets a firm borrow up to a limit. A committed line carries a fee and the bank must lend; an uncommitted line has no obligation to lend. A repurchase agreement (repo) is a sale of securities with a promise to buy them back at a higher price later. It is effectively collateralised borrowing, so its rate is usually lower than unsecured borrowing. Firms may also use bank loans, overdrafts and trade credit.

CP versus a certificate of deposit (CD). A CD is a deposit liability of a bank. CP is a debt of a corporation. CP is unsecured and discount-priced and is not a bank deposit. CDs normally pay interest, and negotiable CDs trade in a secondary market. CP has a thin secondary market, and investors usually hold to maturity.

Key formulas to remember

CP price from discount rate (bank discount basis): Price = Face value × (1 − DR × Days ÷ 360); US CP quotes use a 360-day year. DR is the annualised discount rate as a decimal.
Add-on yield (money market yield) of CP: Money market yield = (Face − Price) ÷ Price × (360 ÷ Days); Uses price in the denominator, so it is higher than the discount rate for the same CP.
Holding period yield: HPY = (Face − Price) ÷ Price; Not annualised. Annualise afterwards using the convention asked for.
US CP SEC registration exemption: Maturity ≤ 270 days to qualify for SEC registration exemption; This is not a cap on maturity. Longer paper can be issued but would have to be registered, so US CP is typically 270 days or less. Eurocommercial paper is not tied to this threshold and is more flexible.
Repurchase price of a repo: Repurchase price = Sale price × (1 + repo rate × Days ÷ 360); Repo rates are commonly quoted on a 360-day basis; follow the question's convention.

How to solve Commercial Paper and Short-Term Funding questions

Most questions either ask you to identify an instrument from its features or to calculate a price or yield. Use this method.

1Read the stem and underline the key feature: unsecured or collateralised, maturity, currency, issuer type.
2Identify the instrument: CP, ECP, CD, repo, committed or uncommitted credit line.
3For a feature question, recall the defining facts: CP is unsecured and discount-priced; repo is collateralised; a committed line obliges the bank to lend.
4For a calculation, note the day-count basis (360 days for money market instruments unless stated).
5Compute price from the discount rate, or yield from price. Keep the denominator straight: face for discount rate, price for yield.
6Check that the yield is higher than the discount rate for the same CP and the price is below face.
7Eliminate options that break a feature of the instrument, then pick the remaining answer.

Quickest way: Feature-match shortcut

When to use it: Use for conceptual items that ask which instrument fits a description, or which statement is correct.

Unsecured plus discount plus corporate issuer means CP.
Secured by securities with a buy-back price means repo.
Bank deposit liability means CD.
Issued outside the currency's home market, flexible in maturity and currency means ECP.
Bank is obliged to lend and charges a fee means committed line.
Strike out two options that contradict these anchors.

Common mistakes in Commercial Paper and Short-Term Funding

Treating CP as secured or as a bank deposit.
CP and CDs are both money market instruments and sound alike.
Fix: CP is an unsecured corporate promise to pay backed only by credit and usually a back-up line. A CD is a bank deposit.
Assuming Eurocommercial paper must be in euros.
The name suggests the currency.
Fix: ECP refers to the market outside the currency's home market. It can be issued in many currencies.
Dividing by face value when computing yield.
The discount rate uses face, so students reuse it.
Fix: Discount rate divides by face. Yield divides by price. Yield is higher.
Using 365 days when the question implies 360.
Habit from bond and loan problems.
Fix: Money market CP uses a 360-day year unless the stem says otherwise.
Thinking a repo is a true sale with no obligation to return.
The first leg looks like a sale.
Fix: A repo is a sale plus a commitment to repurchase. Economically it is collateralised borrowing.
Confusing committed and uncommitted credit lines.
Both are called credit lines.
Fix: Committed means the bank must lend and charges a fee. Uncommitted means the bank can refuse.

Worked examples

Example 1

A corporation issues 90-day commercial paper with a face value of $10,000,000 at a discount rate of 4.00% (360-day year). What is the price of the paper? A. $9,900,000 B. $9,960,000 C. $10,040,000

Show the solution

Price = Face × (1 − DR × Days ÷ 360).
DR × Days ÷ 360 = 0.04 × 90 ÷ 360 = 0.01.
Price = 10,000,000 × (1 − 0.01) = $9,900,000.
Check the other options: B ($9,960,000) is a 0.4% discount, which is only a 1.6% annualised rate (0.4% × 360 ÷ 90), not 4%. C ($10,040,000) exceeds face value, so it is impossible for discount paper.

Answer: A. $9,900,000

Example 2

Which statement about commercial paper is most accurate? A. US commercial paper is typically secured by the issuer's receivables and has maturities over one year. B. Eurocommercial paper is issued outside the home market of the currency and can have flexible maturities. C. Commercial paper is a deposit liability of the issuing bank.

Show the solution

Test A: US CP is normally unsecured, and it is typically issued with maturities of 270 days or less to qualify for the SEC registration exemption, not over one year. A is wrong.
Test C: a deposit liability describes a CD, not CP. C is wrong.
Test B: ECP is issued outside the currency's home market and can be tailored in maturity and currency. This matches the feature.

Answer: B

Exam tips

Know the feature table: CP versus CD versus repo versus ECP. Most questions test one distinguishing feature.
Remember the 270-day threshold for the SEC registration exemption (it is not a maturity cap) and the 360-day money market convention.
If you must calculate, check direction: price below face, yield above discount rate.
Link repo to collateralised borrowing, so its rate is usually lower than unsecured funding.
With three options, eliminate any option that gives CP security or deposit status.

Practice questions from Fixed-Income Markets for Corporate Issuers

Commercial Paper and Short-Term Funding in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Commercial Paper and Short-Term Funding: frequently asked questions

What is the difference between commercial paper and a certificate of deposit?

CP is unsecured short-term debt issued by a corporation at a discount. A CD is a deposit liability of a bank and normally pays interest. Negotiable CDs trade in a secondary market, while CP is usually held to maturity.

What is the difference between Eurocommercial paper and US commercial paper?

US CP is issued in the US market, typically with a maturity of 270 days or less so that it qualifies for the SEC registration exemption. ECP is issued outside the home market of its currency, can be in many currencies, and can have longer or tailored maturities. ECP may also bear interest rather than be sold at a discount.

How do corporates raise short-term funding?

Common sources are commercial paper, bank credit lines, bank loans, overdrafts and repos. Strong-credit firms can use CP, while others rely on bank lines. Repos let a firm borrow against securities at a lower rate.

Why do CP issuers have back-up credit lines?

CP must be repaid at maturity, usually by issuing new CP. If the market closes, the back-up line provides cash. This reduces rollover risk and supports the issuer's credit rating.