Asian Motors Inc. plans to issue $3,000,000 of commercial paper with a 6-month maturity at 98% of par value. What is the EAR?

Name: Asian Motors Inc. plans to issue $3,000,000 of commercial paper with a 6-month maturity at 98% of par value. What is the EAR?
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Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + (Discount/Price))^(365/Days) - 1. The discount is 2% of $3,000,000, which is $60,000. The price is $2,940,000. The EAR is approximately 4.12%.