Q: What do I Benefit from Investing in Commercial Papers?

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 may be gleaned from the magnitude of the difference between the discount rate on a T-Bill with similar maturity and the CP being issued. 

Consequently, CPs offer investors the opportunity to purchase better yielding instruments than available on risk-free instruments, if they are willing to take the calculated risk. 

How are Commercial Papers different from Treasury Bills? CPs have similar characteristics to T-Bills, relating to the mode of pricing. However, that is where the similarities end. T-Bills are usually issued by the government through the CBN at auctions which are typically held fortnightly, for fixed tenors of 91-days, 182-days, and 364-days. 

Also, the minimum volume to participate in the T-Bills primary market auctions is N50,001,000.0, while secondary markets are very active and flexible relative to lot sizes. 

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