Let the face value of commercial paper be denoted by F.V., net amount realised from the commercial…
Commercial Paper (CP) is a short-term unsecured money-market promissory note issued at a discount to its face value (F.V.). Its annualized effective pre-tax cost is…
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Let the face value of commercial paper be denoted by F.V., net amount realised from the commercial paper be NAR, maturity period of commercial paper be MP. The effective pre - tax cost of commercial paper shall be :
Answer and explanation
Correct answer D
Commercial Paper (CP) is a short-term unsecured money-market promissory note issued at a discount to its face value (F.V.). Its annualized effective pre-tax cost is calculated as: [(F.V. - NAR) / NAR] * (360 / MP), where NAR is the net amount realized and MP is the maturity period in days.
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