When an issuer of commercial paper issue fails to raise the funds,this most likely means the:
A) company is in default.
B) issue is underpriced.
C) underwriter must purchase unsold notes.
D) issuer must establish a rollover facility for the remaining notes.

Question

Quizplus · Accepted Answer

When an issuer of commercial paper is unable to raise funds, it means that there is unsold inventory. In such a scenario, the underwriter is obligated to purchase the unsold notes. This is why choice C is correct. Choice A is incorrect as default occurs when a borrower fails to pay back their loan entirely. Choice B is incorrect as underpricing occurs when the securities are priced below their intrinsic value. Choice D is incorrect since a rollover facility is established to allow the issuer to replace maturing paper with new paper.

When an Issuer of Commercial Paper Issue Fails to Raise