Investing in Commercial Papers
Q. How to calculate your Commercial Paper Investment Returns
Stage 1 Under current terms (interest rate & 182-day tenor), investor puts N5m to work. However, this represents Face value "FV" (A) to be received at maturity. Interest works out to -N514k (B) which if taken upfront, means the actual/real amount ...
Q: Can I Sell before Maturity?
Yes, you can sell CPs before maturity. A major constraint of selling CPs, however, is illiquidity and size of minimum tradeable volume. Also, the price at which you sell depends on the prevailing interest rate at the time.
Q: What are the other benefits of Commercial Paper?
Interest earned is tax-exempt. Since certificates are issued for CP investments, they can be used as collateral or as evidence of investment for visa application.
Q: Can I rollover my CP Investment?
Usually, the answer is no. This is because a CP issuance is not a periodic auction which provides certainty of another CP investment opportunity. This, however, does not rule out possibility of a CP investment opportunity at maturity. Nevertheless, ...
Q: What do I Benefit from Investing in Commercial Papers?
While CPs in Nigeria are typically issued by blue chip corporates with impressive track records of financial performance, this does not eliminate credit risk. The discount rate on the CP is usually reflective of the credit rating of the issuer, which ...
Q: What is a Commercial Paper Auction?
In the primary market, the issuer through an Issuing House sells to the market, through a fixed price subscription. Here, market participants signal interest in the issue and commit to purchasing volume sizes over an ‘offer period’ – which typically ...
Q: What is the Tenor?
CPs are issued for time periods which match the issuer’s needs, with minimum and maximum tenors of 15 days and 270 days respectively.
Q: Primary and Secondary Market for Commercial Papers
A CP can be purchased either in a primary or secondary market. The primary market is where investors buy financial instruments at issuance, while in the secondary market, investors trade (i.e., buy and sell) instruments purchased at primary market ...
Q: What is True Yield?
The ‘true yield’ is the effective return on investment (ROI). Using a simplified example, if an investor wants to receive N100,000 after a one-year period (365-days) and choses to invest in a discounted instrument which is offered at a rate of 10%, the ...
Q: How do Commercial Papers work?
CPs are like Treasury bills (“T-Bills”) because they are issued at discount rates, which may be paid upfront or capitalized.
Q: What are commercial papers?
Commercial Papers (“CPs”) are unsecured short-term debt instruments issued by corporates to get funds from the public (private individuals, institutional investors, non-governmental organizations, religious bodies etc.) to meet short-term debt ...