CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers
A corporation sells 90-day commercial paper with a face value of $10,000,000 at a discount rate of 4.00% using a 360-day year. The proceeds raised are closest to:
The discount is $10,000,000 × 4% × 90/360, which equals $100,000. Proceeds are face value less the discount, so the issuer raises about $9,900,000. Deducting a full year of discount would wrongly give $9,600,000.
- A$9,600,000
- B$9,900,000Correct
- C$9,960,000
Explanation
Discount = 10,000,000 × 0.04 × 90/360 = 100,000. Proceeds = 10,000,000 − 100,000 = 9,900,000. The $9,600,000 figure ignores the 90/360 time fraction and deducts a full year of discount. The $9,960,000 figure is not reached by any consistent calculation.
Did you get it right without looking?
One question tells you little. A timed set on Fixed-Income Markets for Corporate Issuers shows your real accuracy, how long you take and where you lose marks.
More Fixed-Income Markets for Corporate Issuers questions
- A company issues a bond with a coupon that is reset every six months at a reference rate plus a fixed spread. Which risk is the investor in …
- A company has a EUR 50 million revolving credit facility, of which EUR 20 million is drawn. The bank charges a commitment fee of 0.40% a yea…
- A corporate issuer sells newly issued bonds directly to a group of institutional investors without making a public offering and without regi…
- In a syndicated loan, a lender that sells part of its existing commitment to another institution after the loan has closed is most likely pa…
- Compared with a corporate bond issued in the public market, a syndicated loan is most likely to be:
- A company issues 180-day commercial paper with a face value of $5,000,000 and receives $4,900,000. The bond-equivalent yield, using a 365-da…