A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Question

Quizplus · Accepted Answer

The cost of borrowing can be calculated using the discount yield formula, which is [(Face Value - Purchase Price) / Face Value] * (360 / Days to Maturity). Here, the face value is $10,000,000, the purchase price is $9,900,000, and the days to maturity are 30. Plugging these values into the formula gives us [(10,000,000 - 9,900,000) / 10,000,000] * (360 / 30) = 0.01 * 12 = 0.12 or 12.12 percent.

A Firm Plans to Issue 30-Day Commercial Paper for $9,900,000