Tangshan Mining issued $10,000 of commercial paper for $9,925 for 60 days. Based on this information, the effective annual rate of interest on the commercial paper would be about 4.69 percent.

Question

Quizplus · Accepted Answer

To calculate the effective annual rate of interest on commercial paper, we need to use the following formula:

Effective Annual Rate = (1 + i/m)^m - 1

Where i = the stated rate or discount rate
m = the number of times the interest is compounded in a year

In this case, the commercial paper was issued at a discount of $75 ($10,000 - $9,925). So, the effective interest for 60 days is $75, and the annualized interest would be:

Effective Annual Rate = ($75/$9,925) x (365/60) = 4.69%

Therefore, the answer is A.

Tangshan Mining Issued $10,000 of Commercial Paper for $9,925 for 60