A firm issued $2 million worth of commercial paper that has a 90-day maturity and sells for$1,900,000. The annual interest rate on the issue of commercial paper is

Question

Quizplus · Accepted Answer

The formula to calculate the annual interest rate on commercial paper is:

Annual interest rate = (face value - selling price) / (selling price x days to maturity / 360)

Substituting the given values, we get:

Annual interest rate = (2,000,000 - 1,900,000) / (1,900,000 x 90 / 360) = 0.21 or 21%

Therefore, the annual interest rate on the commercial paper is 21%. Hence, the correct choice is D.

A Firm Issued $2 Million Worth of Commercial Paper That