Marketable Securities Examples Top 5 Examples Of Marketable Securities

Marketable Securities Examples

Marketable securities, also called short-term investments, are favored by major corporations. It is impossible to provide a complete set of examples that address every variation in every situation since there are thousands of such securities. The following marketable securities examples outline the most common Marketable Securities.

Examples of Marketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company’s balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more Include –

Common StockCommercial PapersCommercial PapersCommercial Paper is a money market instrument that is used to obtain short-term funding and is often issued by investment-grade banks and corporations in the form of a promissory note.read moreBanker’s AcceptanceBanker’s AcceptanceBanker’s acceptance is a financial instrument guaranteed by the bank for the payments at a future date. The bank accepts the liability to pay the third party in case the account holder defaults. It is commonly used in cross border trade for assuring exporters against counterparty default risk.read moreTreasury BillsCertificate of DepositCertificate Of DepositA certificate of deposit (CD) is an investment instrument mostly issued by banks, requiring investors to lock in funds for a fixed term to earn high returns. CDs essentially require investors to set aside their savings and leave them untouched for a fixed period.read moreother money market instrumentsMoney Market InstrumentsThe money market is a financial market wherein short-term assets and open-ended funds are traded between institutions and traders.read more

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List of Most Common Examples of Marketable Securities

Example #1 – Treasury Bills

Calculate the current price and the Bond equivalent yield (Using simple compounding) of money market instruments with a face value of Rs100 and discount yield of 8% in 90 Days.

Solution:

Take year = 360 days.

Discount Yield uses 360 Days in a year, and it is calculated on fair value that is face value here.

DY = [ ( FV – P)/FV) ] × ( 360/n)× 100

Here,

FV = Rs 100, n = 90 days, DY = 8, P = current price

Calculation of Current Price –

So, putting the above figures In the formula will get the current price.

8 = [(100-P)/100] × (360/90) × 100

Current Price = Rs 98

Calculation of Bond Equivalent Yield –

Bond Equivalent YieldBond Equivalent YieldThe formula calculates the bond equivalent yield by ascertaining the difference between the bond’s nominal or face value and purchase price. These results must be divided by their price, and these results must be multiplied by 365 and then divided by the remaining days left until the maturity date.read more uses 365 Days in a year and is calculated on actual investment.

BEY = [ ( FV – P)/FV) ] × ( 365/n)× 100

=[(100-98)/100] × (365/90) × 100

BEY = 8.11%

Example #2 – Commercial Paper

ABC public limited company initiated a Commercial Paper in the market details mentioned below.

Date of initiate – 17th May 2018Date of Maturity – 15th August 2018Number of Days – 90Coupon Rate – 11.35%

What is ABC limited’s net amount after initiating 90 days of commercial paper?

Solution

The company has to provide a yield of 11.35% to investors on its investment over one year. Therefore, we will use 365 days and calculate the difference between the price and face value of his investment. The formula is as follows,

Yield = [( FV – A)/A) ] × ( 365/Maturity)× 100

A – Net Amount received from investorsFV – It is assumed to be Rs 100

Maturity – 90 Days

Yield (interest) – 11.35%

So by putting the figures mentioned above in the formula will get the Net Amount for 100Rs face value commercial paper.

Calculation of Net Amount –

11.35% = [(100-A)/A] × (365/90)×100

Solving the above equation will get A = 97.28 Rs

So if a company-issued commercial paper is worth Rs 10 Crores, the Company would receive only 97,277,560.87 Crores.

Net Amount = 97277560.87

Example #3 – Certificate of Deposit

XYZ Company has a due payment of Rs3 Crores on 15th September 2018. The company has extra cash today, 15th June 2018. After considering all facts and figures, it decided to put surplus cash in the Certificate of Deposit of one of the Government Banks at 8.25% per annum. Calculate the Amount of Money that needs to be invested in a certificate of deposit today to make the due payment? Here year is to be taken as 365 days.

CDs are issued at a discount price, and the discount amount is paid at issue itself.

Formula For CDs

D = 1×(r/100)×(n/365)

D – Discountr– the rate of discountingn– Month/ Days

Calculation of CD-

D= 1×(8.25/100)×(91/365)

D= Rs 0.020568493

The amount to be received on Face Value Rs 1 will be –

Amount to be received on Face Value Rs 1 = Rs 1 + Rs 0.020568493

=Rs 1.020568493

The amount to be Invested will be –

If the amount to be received is Rs 3 crore, then,

Amount to be Invested Is = (3 Crores/1.020568493) = Rs29,395,381.30

Amount to be Invested = Rs29,395,381.30

Example #4 – (Commercial Paper with Description on NSDL as AARTI INDUSTRIES LIMITED)

Aarti industries limited issued a Commercial Paper with a Description of NSDL as AARTI INDUSTRIES LIMITED 90D CP 20FEB19 and the below details.

Face Value – Rs5,00,000Issue Price – Rs4,80,000Issue Date – 22/11/2018Maturity Date – 20/02/2019Credit Rating A1+

What is the cost or yield of Commercial Paper?

We know that

Yield = (Face Value – Issue Price/Issue Price)× (360/Days of Maturity)

So Here, Maturity Days is 90 Days,

Calculation of Yield –

Yield = (5,00,000 – 4,80,000/4,800,000)×(360/90)

Yield = (20,000/4,80,000)×4

Yield = 0.042×4

Yield = 0.167 or 16.7%

So yield or cost of commercial paper is 16.7%

Example #5 (United States Treasury Bill)

The United States Treasury Bill was issued for cusipCusipCUSIP is an abbreviation for the Committee on Uniform Securities Identification Procedures. It is a unique identification code assigned to most financial instruments, including stocks registered with all American and Canadian corporations, commercial papers, and US government and municipal bonds.read more 912796UM9 with the principal amount of 25,000,000 with a maturity period of 90 Days and a coupon rate or discount yield of 2.37%. Calculate the current price of the Treasury Bill? Take the year as 360 Days.

Face Value – 25,000,000Maturity – 90 DaysDiscount Yield – 2.37%P( Current Price)-?

2.37 = [(25,000,000 – P)/25,000,000] × (360/90) × 100

Current Price = 24851875

So Solving the above equation will get the current price of the United States Treasury Bill, which is 24,851,875.

Conclusion

Cash and Marketable Securities are companies’Liquid Assets are the business assets that can be converted into cash within a short period, such as cash, marketable securities, and money market instruments. They are recorded on the asset side of the company’s balance sheet.read more liquid assetsLiquid AssetsLiquid Assets are the business assets that can be converted into cash within a short period, such as cash, marketable securities, and money market instruments. They are recorded on the asset side of the company’s balance sheet.read more, and sufficient cash and Marketable Securities management are very important for the companies. Many companies invest in marketable securities because it is a Substitute for hard Cash, Repayment of short-term liabilities, and Regulatory requirements. These features and advantages of marketable securities make them popular. Holding Marketable Securities for a company depends on the solvency and financial condition of a company. Marketable Securities have some limitations, like low returns, default risk, and inflation riskInflation RiskInflation Risk is a situation where the purchasing power drops drastically. It could also be explained as a situation where the prices of goods and services increase more than expected. Inflation Risk is also known as Purchasing Power Risk.read more associated with marketable securities. In short Marketable Securities is an investment option for the organization to earn returns on existing cash while maintaining cash flowCash While Maintaining Cash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more due to high liquidity.