A large ski manufacturer issues $50 million face value 60-day commercial paper for net proceeds of $49.75 million. The ski manufacturer must maintain a $50 million credit line, on which it must pay a standby fee of .1 percent. The quoted yield of this commercial paper is closest to:

Question

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The quoted yield can be calculated using the formula for the yield of commercial paper: $$Yield = \left(\frac{Face\ Value - Net\ Proceeds}{Net\ Proceeds}\right) \times \left(\frac{360}{Days\ to\ Maturity}\right)$$ Substituting the given values: $$Yield = \left(\frac{50,000,000 - 49,750,000}{49,750,000}\right) \times \left(\frac{360}{60}\right) = \left(\frac{250,000}{49,750,000}\right) \times 6 = 0.0304 \times 100 = 3.04\%$$ The standby fee does not affect the calculation of the quoted yield of the commercial paper itself.

A Large Ski Manufacturer Issues $50 Million Face Value 60-Day