A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issue sold for $980,000 and has an annual interest rate of 12.24 percent. The value of the commercial paper at maturity is
A) $19,992.
B) $980,000.
C) $999,992.
D) $960,008.

Question

Quizplus · Accepted Answer

The interest earned on the commercial paper can be calculated as follows:

Interest = (Principal x Annual Interest Rate x Time) / 365
       = ($980,000 x 0.1224 x 60) / 365
       = $20,008

Therefore, the value of the commercial paper at maturity is:

Value at Maturity = Principal + Interest
                  = $980,000 + $20,008
                  = $999,992

Hence, the correct option is (C) $999,992.

A Firm Has Directly Placed an Issue of Commercial Paper