Commercial Papers (“CPs”) are unsecured short-term debt instruments issued by corporates to get funds from the public (private individuals, institutional investors, non-governmental organisations, religious bodies etc.) to meet short-term debt obligations such as working capital needs.

CPs are like Treasury bills (“T-Bills”) because they are issued at discount rates, which may be paid upfront or capitalized.

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.

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, when a CP investment matures, it can be rolled over into another money market or fixed income investment such as T-Bills and Bonds.

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 investor will pay a discounted value of N90,000 to receive N100,000 at maturity.

The true yield on that investment is not 10.0%. It is in fact 11.1%, calculated as return received as against the initial investment (N10,000/N90,000). This represents the return to the investor if the instrument is held to maturity.

The discount rate is used to calculate the present value of an investment, which differs from the yield on an investment.