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ICMA FMFQ Exam - Topic 4 Question 45 Discussion

You have just bought a USD 5,000,000 of a 3 month Commercial paper (91 days) qupted at a discount to yield of 4.5% (A/360). How much will you pay for this security?
C) Less than face value
A) Face value
B) More than face value
D) Need more information

ICMA FMFQ Exam - Topic 4 Question 45 Discussion

Actual exam question for ICMA's FMFQ exam
Question #: 45
Topic #: 4
[All FMFQ Questions]

You have just bought a USD 5,000,000 of a 3 month Commercial paper (91 days) qupted at a discount to yield of 4.5% (A/360). How much will you pay for this security?

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Suggested Answer: C

by Chantell at Oct 17, 2023, 04:56 PM

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Cyril
7 months ago
I thought commercial papers were always at face value?
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Sang
7 months ago
Definitely less than face value, that’s how it works.
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Brunilda
7 months ago
Wait, are you sure it’s less? Seems off to me.
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Virgie
7 months ago
Totally agree, it’s a discount yield!
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Yuette
8 months ago
You’ll pay less than face value for that commercial paper.
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Olive
8 months ago
I feel like I need more information about the exact discount calculation to be sure about the answer.
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Hailey
8 months ago
This reminds me of a practice question where we had to calculate the price based on the discount yield. I think it’s definitely less than face value.
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Adelina
8 months ago
I’m a bit unsure about the calculation, but I think the yield means we pay less than $5 million.
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Nydia
8 months ago
I remember that commercial paper is usually sold at a discount, so I think we’ll pay less than the face value.
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Xochitl
8 months ago
Hmm, I'm not sure if I have all the information I need here. Do we need to know the actual number of days or can we just use the 91-day maturity?
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Matthew
8 months ago
This seems straightforward. Since the paper is quoted at a discount, we'll pay less than the face value. I'm pretty confident I can solve this using the discount formula.
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Aileen
8 months ago
I'm a bit confused on how to approach this. Do we need to calculate the present value of the face value to get the price?
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Santos
8 months ago
Okay, let's think this through step-by-step. We have a $5,000,000 commercial paper with a 91-day maturity and a 4.5% discount yield. To find the price, we'll need to use the discount formula.
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Gussie
9 months ago
This seems like a tricky one. I'd want to make sure the teams are taking responsibility for coordinating their work, so I'd lean towards option B.
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Rosina
9 months ago
This looks like a straightforward question on insurance company investment regulations. I think I can apply the concepts we covered in class to determine the correct answer.
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Nickie
9 months ago
I think this could be a compound instrument because it has both debt and equity features—like the practice question we did on convertible bonds!
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