Commercial paper is a short-term unsecured corporate IOU sold at a discount — the quoted discount yield understates the investor’s actual return.
How it works
Discount yield divides the discount by face value; bond-equivalent yield divides the same discount by the smaller purchase price instead, and uses a 365-day rather than 360-day year — both differences push the bond-equivalent yield above the discount yield.
What this does not include
This uses the same discount-instrument conventions as this site’s treasury-bill-yield calculator — commercial paper carries additional credit risk (unlike a T-bill’s government backing), a risk factor not reflected in the yield math itself.
How to use this calculator
- Enter face value, purchase price, and days to maturity.
Frequently asked questions
Why does bond-equivalent yield always exceed discount yield?
Because it divides by the smaller purchase price rather than face value, and uses a 365-day year instead of 360 — both adjustments push the figure higher for the same underlying discount.
Who issues commercial paper?
Large, creditworthy corporations use it to meet short-term funding needs (payroll, inventory) at typically lower rates than a bank loan, backed only by the issuer’s credit standing rather than collateral.
What’s the typical maturity of commercial paper?
Usually 1 to 270 days, with most issuance clustering under 90 days — maturities beyond 270 days would require SEC registration under securities law.
