Question
Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 130-day commercial paper with a face value of $1.4
Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of
130-day
commercial paper with a face value of
$1.4
million. The firm has received initial proceeds of
$1,363,971.
(Note:
Assume a
365-day
year.)a.What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every
130
days throughout the year?b. If a brokerage fee of
$13,171
was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming that the paper is rolled over every
130
days throughout the year?
Question content area bottom
Part 1
a. The effective annual rate the firm will pay for financing with commercial paper, assuming that it is rolled over every
130
days throughout the year, is
enter your response here%.
(Round to two decimal places.)
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