Asked by connor Xiong on Apr 25, 2024
Verified
If a firm issues $5 million of commercial paper with a maturity of three months at an annual interest rate of 8%, the proceeds of the issue are:
A) $4,900,000.
B) $4,629,630.
C) $4,901,961.
D) $4,600,000.
Commercial Paper
An unsecured, short-term debt instrument issued by corporations to finance their immediate operating expenses, inventory, and other short-term liabilities.
Maturity
The date on which the principal of a debt is due. Also the time from the present until that date.
Annual Interest Rate
The percentage of interest that will be charged or earned on an investment or loan on an annual basis.
- Compute the effective cost of using commercial paper as a financing method.
Verified Answer
Learning Objectives
- Compute the effective cost of using commercial paper as a financing method.
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