ICMA FMFQ Exam - Topic 4 Question 45 Discussion

Actual exam question for ICMA's FMFQ exam

Question #: 45
Topic #: 4

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?

AFace value

BMore than face value

CLess than face value

DNeed more information

Show Suggested Answer

Suggested Answer: C

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

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Cyril

5 months ago

I thought commercial papers were always at face value?

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Sang

5 months ago

Definitely less than face value, that’s how it works.

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Brunilda

6 months ago

Wait, are you sure it’s less? Seems off to me.

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Virgie

6 months ago

Totally agree, it’s a discount yield!

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Yuette

6 months ago

You’ll pay less than face value for that commercial paper.

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Olive

6 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

6 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

7 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

7 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

7 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

7 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

7 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

7 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

7 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

7 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

7 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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