CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments
A 90-day bank deposit is quoted at an add-on rate of 3.20% with a 360-day year. An investor places 2,000,000 in the deposit. The amount received at maturity is closest to:
The investor receives about 2,016,000. Add-on interest is principal times rate times days over 360: 2,000,000 times 3.2% times 90/360 equals 16,000, which is added to the principal. Using a full year of interest would overstate the payoff.
- A2,016,000Correct
- B2,064,000
- C2,160,000
Explanation
Interest = 2,000,000 × 0.032 × 90/360 = 16,000. Maturity amount = 2,016,000. Option B uses a full-year rate of 3.2% with 360 days misapplied (adds 64,000, a full year's interest); option C is a magnitude error.
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