CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments
A 120-day money market instrument has a face value of 1,000,000 and is quoted at a discount rate of 4.50% using a 360-day year. The price of the instrument is closest to:
The price is 985,000. With a 4.50% discount rate over 120 days of a 360-day year, the discount is 1.5% of face value, so price equals 1,000,000 times 0.985. The discount rate is applied to face value, not price.
- A985,000Correct
- B985,200
- C998,500
Explanation
PV = FV × (1 − Days/Year × DR) = 1,000,000 × (1 − 120/360 × 0.045) = 1,000,000 × (1 − 0.015) = 985,000. Option B is a near-miss with no valid derivation; option C uses 0.15% instead of 1.5%, a decimal error.
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