Question

You can buy commercial paper of a major U.S. corporation for $493,589.  The paper has a face value of $500,000 and is 50 days from maturity.  Calculate the discount yield on the commercial paper. Answer in percent to three decimal places. Omit the percent sign.

Answer 1

The number of days in a year for dividend yield calculation should be 360 days.

Dividend yield = [{(Face value – Bought price) / Face value} × (360 / maturity days)] × 100

                        = [{(500,000 – 493,589) / 500,000} × (360 / 50)] × 100

                        = [{6,411 / 500,000} × 7.2] × 100

                        = [0.012822 × 7.2] × 100

                        = 0.0923184 × 100

                        = 9.23184%

Answer: 9.231