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Commercial Papers - k-12 - 1-20
Commercial Papers - k-12 - 1-20
Q2:
Q5:
Codes:
I. Commercial papers are non-negotiable.
II. Commercial papers are issued with fixed maturity date.
III. Commercial papers are also known as treasury bills.
IV. Commercial papers are unsecured promissory notes.
Options:
A. Only statement II is incorrect
B. Statement I and III are incorrect
C. Statement I and IV are incorrect
D. All statements are incorrect
Solution: B
Explanation- Commercial papers are short-term debt instrument which are negotiable,
unsecured promissory notes, transferable by endorsement and issued with fixed maturity
period.
Q7:
Q8:
Options:
A. The difference between the issue value and the redemption value.
B. Fixed rate of interest
C. Flexible rate of interest
D. None of the above
Solution: A
Explanation- Commercial papers are issued at discount and redeemed or paid redemption
value. The difference between the issue value and the redemption value is the yield of the
commercial paper.
Q9:
Q10:
Q12:
Commercial papers issued by large corporations at ________ value than the market value.
A. Lower
B. higher
C. equal to the
D. zero
Solution: A
Explanation- Commercial papers are issued at lower value than the market value by the large
and creditworthy companies. These securities are issued for making short-term funds
available to the investors.
Q13:
Assertion (A): If commercial papers are hold till maturity then they are repaid at par value.
Reason (R): Fixed rate of interest is paid to the commercial paper holder which increases
with the holding period.
Choose the correct answer from the following code:
A. Both (A) and (R) are true and (R) is the correct explanation of (A).
B. Both (A) and (R) are true, but (R) is not the correct explanation of (A).
C. (A) is true but (R) is false
D. (A) is false but (R) is true
Solution: C
Explanation- Commercial papers are issued at lower or discounted value than the face value.
If commercial paper is hold till maturity then its redemption value is equal to the face value.
Q14:
Suppose, if 15 days commercial paper is issued at 25,000 whose face value is 28,000. What
will be the yield on commercial paper if they are held till maturity?
A. 47,000
B. 28,000
C. 3,000
D. 97,000
Solution: C
Explanation- Commercial paper are usually issued at discount and repaid at face value if
held till maturity. The difference of which is the yield on commercial paper The yield on
commercial paper will be 3000 (28,000-25,000).
Q15:
In case a company need to procure long-term capital to purchase a machine. While procuring
the long-term capital company requires to pay some flotation cost which can be procure
through______.
A. Commercial paper
B. Equity shares
C. debentures
D. preference shares
Solution: A
Explanation- Companies use commercial papers to raise short-term capital or funds to meet
seasonal or working capital requirement. To pay floatation cost the company may use
commercial paper.
Q16:
If Person A purchased commercial paper with 90 days maturity from the large company at
$20,000 and whose market value is $20,500. After 30 days the value of CPs is $22,000 and
the person needs the money in urgent after 30 days. Determine the yield?
A. 20,500
B. 1500
C. 2000
D. 22,000
Solution: C
Explanation- The yield on the CPs will be the difference between the value at which the CPs
are purchased and the value at which they are sold. They value will be equal to face value if
they are held till maturity. Yield will be 2000 (22,000-20,000).
Q17:
In which of the following case, the redemption value of the commercial papers will be equal
to face value?
A. They were held at least till half of the maturity period
B. They were held till maturity period
C. They are sold at par
D. None of the above
Solution: B
Explanation- The redemption value of the commercial paper will be equal to face value only
if this CPs are held till maturity period which is fixed.
Q18:
Q19:
Assertion (A): Commercial paper can be issued for minimum of 15 days maturity period.
Reason (R): The maximum maturity period of CPs can be 91 days.
Choose the correct answer from the following code:
A. Both (A) and (R) are true and (R) is the correct explanation of (A).
B. Both (A) and (R) are true, but (R) is not the correct explanation of (A).
C. (A) is true but (R) is false
D. (A) is false but (R) is true
Solution: C
Explanation- Commercial papers are issued for fixed maturity term. The commercial papers
are generally issued for minimum of 15 days and maximum of one year or less than one year
of maturity period.
Q20:
If Person A purchased commercial paper with 270 days maturity from the large company at
$50,000 and whose market value is $50,500. The face value of the CP is $55,000. What will
be the yield if CPs is held till maturity?
A. 50,500
B. 5,000
C. 55,000
D. 500
Solution: B
Explanation- The yield on the CPs will be the difference between the value at which the CPs
are purchased and the value at which they are sold. They value will be equal to face value if
they are held till maturity. The yield will be 5000 (55,000-50,000).