CMA Intermediate · Financial Management and Business Data Analytics · Money Market
Kaveri Pharma issues 182-day commercial paper of face value ₹10,00,000 at a price of ₹9,50,000. Using a 365-day year, the effective simple annualised yield on the amount invested is closest to:
The gain of ₹50,000 on an investment of ₹9,50,000 is 5.263% for 182 days. Annualising with 365/182 gives about 10.56%. Using face value as base or failing to annualise would give wrong answers.
- A10.56%Correct
- B10.00%
- C5.26%
- D10.99%
Explanation
Return for the period = 50,000/9,50,000 = 5.263%. Annualised = 5.263% x 365/182 = 10.56%. Check: 9,50,000 x (1+0.1056x182/365) = 9,50,000 x 1.05265 = about 10,00,000. 10.00% uses face value base and 5.26% is not annualised; 10.99% wrongly uses 175 days.
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