Western Appliance Inc.has planned a 3-month issue of commercial paper with a face value of $15,000,000.The paper is set to sell at 98% of face value.What is the 3-month interest rate?

Question

Quizplus · Accepted Answer

The 3-month interest rate is the difference between the face value and the selling price, divided by the face value and multiplied by the number of months. In this case, the difference between the face value and the selling price is $15,000,000 - $14,700,000 = $300,000. The face value is $15,000,000 and the number of months is 3. Therefore, the 3-month interest rate is $300,000 / $15,000,000 * 3 = 2.04%.