Commercial Papers - k-12 - 1-20

Q1:
Question Type: Concept

Question Variety: Text Based
Difficulty: Easy
Expected Time to Solve (in seconds):30
Topic: Business finance and marketing
Concept: Financial markets
Sub Concept: Money market instruments
Concept Field: Commercial paper
Commercial paper is the ________ debt instrument.

A. Long-term
B. Short-term
C. Primary
D. Secondary
Solution: B
Explanation- Commercial paper is the short-term instrument which can be converted into
cash within one year or less than one year. Commercial papers are the short-term money
market instruments.
Q2:

Difficulty: Easy
The term of commercial paper cannot exceed from _______.

A. Two years
B. Six months
C. One year
D. Five years
Solution: C
Explanation- Commercial paper are the short-term debt instruments traded in the money
market which means that their maturity period is generally equal to one year or less than one
year.
Q3:

Difficulty: Easy
In which of the following market, the commercial papers are traded?

A. Money market
B. Capital market
C. Primary market
D. Secondary market
Solution: A
Explanation- Commercial paper are the short-term debt instruments that are particularly
traded in the money market. Money market is the place where short-term securities are
traded.
.
Q4:

Difficulty: Medium
What is the minimum period for which commercial paper are issued?
A. 60 days
B. 15 days
C. 30 days
D. 45 days
Solution: B
Explanation- Commercial paper are generally issued by large corporations for at least 15
days. These are the short-term assets that can be converted into cash within one year.
Q5:
Question Type: Conceptual

Difficulty: Hard
Assertion (A): Commercial papers are unsecured promissory notes.
Reason (R): Commercial papers are generally issued for long-term.
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 short-term non-secured promissory notes which can be
transferred by an endorsee with definite maturity period. These securities are short-term in
nature.
Q6:

Difficulty: Medium
Identify the incorrect statement.
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:

Difficulty: Easy
Commercial papers are _______.

A. Highly risky
B. Moderately risky
C. Less risky
D. None of the above
Solution: C
Explanation- Commercial papers are less risky as they are short-term instrument issued by
large and creditworthiness companies. Commercial papers are issued for minimum of 15 days
and maximum of one year.
Q8:

Difficulty: Medium
Yield on commercial paper is ____________.
Options:
A. The difference between the issue value and the redemption value.
B. Fixed rate of interest
C. Flexible rate of interest
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:

Difficulty: Medium
Identify the purpose of using commercial papers.

A. Legal financing
B. Bridge financing
C. To raise long-term capital
Solution: B
Explanation- Commercial papers are used to raise short-term capital or seasonal or working
capital. Bridge financing refers to the process of raising funds to meet short-term funds
requirement.
Q10:

Difficulty: Medium
Assertion (A): Commercial papers are generally issued at discount.

Reason (R): Yield on commercial paper is the difference between the discount and the
redemption value.
Solution: A
Explanation- Commercial papers are generally issued at discount. Yield on commercial
paper is the difference between the discount and the redemption value.
Q11:

Difficulty: Easy
Who issues commercial papers?

A. Government
B. RBI
C. Large corporate houses
Solution: C
Explanation- The commercial papers are issued by the large corporations which are
creditworthy. These securities are issued at lower price than teh market price.
Q12:

Difficulty: Medium
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:

Difficulty: Hard
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.
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:
Question Type: Numerical

Question Variety: Equation Based
Difficulty: Hard
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:

Difficulty: Medium
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:

Difficulty: Hard
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:

Difficulty: Easy
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
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:

Difficulty: Easy
Commercial papers are issued at_______.

A. Par
B. Premium
C. Discount
Solution: C
Explanation- The current market value at which commercial papers are traded is lower than
the face value or maturity value of commercial paper is said that the treasury bills are sold at
discount.
Q19:

Difficulty: Medium
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.
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:

Difficulty: Hard
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).

Commercial Papers - k-12 - 1-20

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Q1:

Question Type: Concept

Commercial paper is the ________ debt instrument.

Question Type: Concept

The term of commercial paper cannot exceed from _______.

Question Type: Concept

In which of the following market, the commercial papers are traded?

Question Type: Concept

Question Type: Conceptual

Question Type: Concept

Identify the incorrect statement.

Question Type: Concept

Commercial papers are _______.

Question Type: Concept

Yield on commercial paper is ____________.

Question Type: Conceptual

Identify the purpose of using commercial papers.

Question Type: Conceptual

Assertion (A): Commercial papers are generally issued at discount.

Question Type: Concept

Who issues commercial papers?

Question Type: Concept

Question Type: Concept

Question Type: Numerical

Question Type: Conceptual

Question Type: Numerical

Question Type: Concept

Question Type: Numerical

Commercial papers are issued at_______.

Question Type: Concept

Question Type: Numerical

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