# 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 every103 days throughout the​ year? Answersa. 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.)

Question
Asked Dec 13, 2019
6 views
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?

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.)
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.)
check_circle

Step 1

a)

Computation of effective annual rate:

The effective annual rate is 6.51%.

Step 2

Excel working:

Step 3

b)

Computation of effective annual rate:

The effective annual rate is 10.17%.

Excel spr...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in