CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
A corporation issues 90-day commercial paper with a face value of $5,000,000 at a discount rate of 4.8% per year on a 360-day basis. The proceeds to the issuer are closest to:
The issuer receives about $4,940,000. The discount equals $5,000,000 times 4.8% times 90/360, or $60,000, and this is deducted from face value because commercial paper is issued at a discount and repaid at par.
- A$4,940,000Correct
- B$4,970,000
- C$4,988,000
Explanation
Discount = 5,000,000 × 0.048 × 90/360 = $60,000. Proceeds = 5,000,000 − 60,000 = $4,940,000. Option B uses a 45-day period and option C uses a wrong rate scaling.
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