Question
Cost of commercial paper Better Effort Corporation sold an issue of 90-day com-mercial paper with a face value of $2 million. The firm has received
Cost of commercial paper Better Effort Corporation sold an issue of 90-day com-mercial paper with a face value of $2 million. The firm has received initial proceeds of $1,987,000. (Note: Assume a 365-day year.) a. What effective annual rate will the firm pay for financing with commercial paper, assuming it is rolled over every 90 days throughout the year? b. If a brokerage fee of $18,756 was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming the paper is rolled over every 90 days throughout the year?
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