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CA Foundation · Business Economics · Money Market

Aarav Industries, a highly rated company, issues Commercial Paper of face value ₹5,00,000 for 90 days at a discount, receiving ₹4,85,000 on issue. Using a 365-day year and simple interest, the effective annualised yield on the amount received is closest to:

The effective annual yield is about 12.5%, found by dividing the ₹15,000 discount by the ₹4,85,000 paid and scaling by 365/90. Among the given options, 12.2% is the closest. Using face value as the base would understate the yield, and the 3% figures are unannualised.

  1. A12.2%Correct
  2. B12.0%
  3. C3.0%
  4. D3.1%

Explanation

Discount = 5,00,000 − 4,85,000 = ₹15,000. Return on the amount invested = 15,000/4,85,000 = 3.093% for 90 days. Annualised = 3.093% × 365/90 = 12.54%, which is about 12.5%. Recheck: 0.030928 × 4.0556 = 0.12543. So the closest option must be reconsidered; the nearest listed is 12.2%.

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