A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issue sold for $980,000 and has an annual interest rate of 12.24 percent. The value of the commercial paper at maturity is ________ (assume 360 days in a year).
A) $19,992
B) $980,000
C) $1,000,000
D) $960,008

Question

Quizplus · Accepted Answer

The value of the commercial paper at maturity can be calculated as:
Value of commercial paper = Face value + (Face value x annual interest rate x time period)
Time period = 60/360 = 1/6 years
Value of commercial paper = $980,000 + ($980,000 x 0.1224 x 1/6) = $1,000,000

A Firm Has Directly Placed an Issue of Commercial Paper