Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 103-day commercial paper with a face value of $1.5 million. The firm has received initial proceeds of $1,473,557. (Note: Assume a 365-day year.) a. What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 103 days throughout the year? b. If a brokerage fee of $13,986 was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming that the paper is rolled over every 103 days throughout the year? Answers a. The effective annual rate the firm will pay for financing with commercial paper, assuming that it is rolled over every 103days throughout the year, is ___%.(Round to two decimal places.) b. The effective annual rate the firm will pay with the brokerage fee, assuming that the paper is rolled over every 103 days throughout the year, is ___%.(Round to two decimal places.)
Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 103-day commercial paper with a face value of $1.5 million. The firm has received initial proceeds of $1,473,557. (Note: Assume a 365-day year.) a. What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 103 days throughout the year? b. If a brokerage fee of $13,986 was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming that the paper is rolled over every 103 days throughout the year? Answers a. The effective annual rate the firm will pay for financing with commercial paper, assuming that it is rolled over every 103days throughout the year, is ___%.(Round to two decimal places.) b. The effective annual rate the firm will pay with the brokerage fee, assuming that the paper is rolled over every 103 days throughout the year, is ___%.(Round to two decimal places.)
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 23P
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Question
Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 103-day commercial paper with a face value of $1.5 million. The firm has received initial proceeds of
$1,473,557. (Note: Assume a 365-day year.)
a. What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 103 days throughout the year?
b. If a brokerage fee of $13,986 was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming that the paper is rolled over every
103 days throughout the year?
Answers
a. The effective annual rate the firm will pay for financing with commercial paper, assuming that it is rolled over every 103
days throughout the year, is ___%.
(Round to two decimal places.)
days throughout the year, is ___%.
(Round to two decimal places.)
b. The effective annual rate the firm will pay with the brokerage fee, assuming that the paper is rolled over every 103 days throughout the year, is ___%.
(Round to two decimal places.)
(Round to two decimal places.)
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