A. Suppose that the three-month T-bill's annualized rate is 16 percent and that Castro Company plans to issue 90-day commercial paper. Castro Company must determine the default premium (DP) and liquidity premium (LP) to offer on its commercial paper in order to make it as attractive to investors as a three- month (13-week) T-bill. The Government's tax status of commercial paper is the same as for T-bills. However, income eamed from investing in commercial paper is subject to state taxes whereas income eamed from investing in T-bills is not. Investors may require a premium for this reason alone if they reside in a location where state and (and perhaps local) income taxes apply. If it is assumed that Castro Company believes that a 0.14 percent default risk premium, a 0.4 percent liquidity premium, and a 0.6 percent tas adjustment are necessary to sell its commercial paper to investors. Required: 1. Determine the appropriate yield to be offered on the commercial paper. [5marks