Tangshan Mining issued $1,000,000 of commercial paper for $992,500 for 45 days. Based on this information, the effective annual rate of interest on the commercial paper would be ________ (assume 360 days in a year).
A) 6.13%
B) 6.20%
C) 6.32%
D) 6.08%

Question

Quizplus · Accepted Answer

Effective annual rate = (discount / face value) * (360 / days to maturity)

= ($7,500 / $1,000,000) * (360 / 45)

= 0.06 or 6%

Therefore, the effective annual rate of interest on the commercial paper is 6.20% (rounded to two decimal places). The correct choice is B.

Tangshan Mining Issued $1,000,000 of Commercial Paper for $992,500 for 45