CMA Intermediate · Financial Management and Business Data Analytics · Money Market
A certificate of deposit of face value Rs 10,00,000 is issued by a bank for 180 days at a discount rate that gives a price of Rs 9,50,000. What is the annualised yield on the price paid, using a 365-day year (to the nearest 0.01%)?
The annualised yield is 10.67%. The gain of Rs 50,000 on the Rs 9,50,000 price paid is 5.263% over 180 days, and multiplying by 365/180 annualises it. Using face value as the base or ignoring annualisation produces the wrong figures.
- A10.67%Correct
- B10.00%
- C5.26%
- D5.00%
Explanation
Gain = 50,000. Return on price = 50,000/9,50,000 = 5.263% for 180 days. Annualised = 5.263% x 365/180 = 10.67%. Using face value as the base gives 5% x 365/180 = 10.14%, and 10.00% results from using 360/180 on face value. The 5.26% and 5.00% options are not annualised.
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