Carborundum Metals issues commercial paper with a face value of $1,000,000 and a maturity of three months. Carborundum receives net proceeds of $992,000 when it sells the paper. If the prime rate is 8% APR compounded quarterly, how much savings in interest did Carborundum realize by accessing the commercial paper market?

Question

Quizplus · Accepted Answer

D) Using a financial calculator: PV = $992,000, I = 8.0/4 = 2.0, N = 1;
compute FV = $1,011,840; hence savings = $11,840.

Carborundum Metals Issues Commercial Paper with a Face Value of $1,000,000