Corporations sell commercial paper at a lower price than the amount the company will pay the holder when the paper comes due. The difference between the initial price and the price paid to the holder when the paper matures represents the interest earned on the note.

Question

Quizplus · Accepted Answer

This statement is true. The difference between the initial price of the commercial paper and the amount paid to the holder at maturity represents the interest earned on the note. This is because the commercial paper is sold at a discount, which means that the holder pays less than the face value of the note. The holder then receives the face value of the note at maturity, which is higher than the amount paid initially, resulting in interest earnings for the holder.

Corporations Sell Commercial Paper at a Lower Price Than the Amount