A CD with a face value of USD 250 million was issued at par with a coupon of 5% for 91 days. You buy it in the secondary market when it has 30 days remaining to maturity and is trading at 5.25%. How much do you pay?
A) USD 252,056,972.97
B) USD 252,028,916.32
C) USD 250,000,000.00
D) USD 248,911,014.31

Question

Quizplus · Accepted Answer

The correct answer is A because the price of the CD can be calculated using the formula: Price = Face Value * (1 - (Coupon Rate * Days to Maturity / 360)) / (1 + (Yield to Maturity * Days to Maturity / 360)). Plugging in the given values, we get: Price = 250,000,000 * (1 - (0.05 * 30 / 360)) / (1 + (0.0525 * 30 / 360)) = 252,056,972.97.

A CD with a Face Value of USD 250 Million