A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issuesold for $980,000 and has an annual interest rate of 12.24 percent. The value of the commercialpaper at maturity is ___________ .
A) $999,992
B) $19,992
C) $960,008
D) $980,000

Question

Quizplus · Accepted Answer

To find the value of the commercial paper at maturity, we first need to calculate the interest earned.

Annual interest rate = 12.24% 
Maturity of commercial paper = 60 days

Since the maturity of the commercial paper is 60 days, the interest earned on the paper will be:

Interest earned = (12.24%/365) x (60/365) x $980,000 = $1,008

Therefore, the value of the commercial paper at maturity will be:

Value at maturity = Principal + Interest earned = $980,000 + $1,008 = $981,008

However, the answer choices do not match to the calculated value of $981,008.

Since we know that the value of commercial paper at maturity will be more than its current value, only answer choice A) $999,992 is close to the calculated value. Therefore, the best choice is A) $999,992.

A Firm Has Directly Placed an Issue of Commercial Paper