Commercial Paper with a face value of $1,000,000 issued at a discount rate of 7.5% simple interest has a term of 360 days. At what price was it issued?
A) $944,736
B) $1,000,000
C) $925,000
D) $1,073,973
E) $931,122

Question

Quizplus · Accepted Answer

The price at which the commercial paper was issued can be calculated using the formula for simple interest: $ \text{Price} = \text{Face Value} - (\text{Face Value} \times \text{Discount Rate} \times \text{Time}) $. Given a face value of $1,000,000, a discount rate of 7.5%, and a term of 360 days, the calculation is $ \text{Price} = \$1,000,000 - (\$1,000,000 \times 0.075 \times \frac{360}{360}) = \$1,000,000 - \$75,000 = \$925,000 $. Therefore, the correct answer is C, not E, based on the calculation provided.

Commercial Paper with a Face Value of $1,000,000 Issued at a Discount