Picketfence Realty issues commercial paper with a face value of $200,000 and a maturity of six months. Picketfence receives net proceeds of $198,000 when it sells the paper. If the prime rate is 7.7% APR compounded quarterly, how much savings in interest did Picketfence realize by accessing the commercial paper market?

Question

Quizplus · Accepted Answer

C) Using a financial calculator: PV = $198,000, I = 7.7/4 = 1.925, N = 2;
compute FV = $205,696; hence savings = $5,696.

Picketfence Realty Issues Commercial Paper with a Face Value of $200,000