If a firm issues $5 million of commercial paper with a maturity of six months at an annual interest rate of 8%, the proceeds of the issue are:
A)$5,000,000.
B)$4,629,629.
C)$4,800,000.
D)$4,807,692.

Question

Quizplus · Accepted Answer

The formula to calculate the proceeds from the issue of commercial paper is:
Proceeds = Face Value / (1 + (r x t/360))
where r is the annual interest rate and t is the time to maturity in days.

Plugging in the given values, we get:
Proceeds = $5,000,000 / (1 + (0.08 x 180/360))
Proceeds = $4,807,692

Therefore, the best choice is D.

If a Firm Issues $5 Million of Commercial Paper with a Maturity