Question 6.2

Which of the following are typical commercial paper maturities? Select all that apply.

A. 1 day

B. 25 days

C. 40 days

D. 340 days

Which of the following are characteristics of commercial paper? Select all that apply.

A. They are typically used as an alternative to short-term bank loans.

B. Firms are the most common investors in these securities.

C. Activity in their secondary market is high.

D. They are typically used to finance firms major projects like the construction of new facilities.

Suppose Lucia purchases a 30-day commercial paper with a par value of $1,000,000 for a price of $998,000. If Lucia holds the commercial paper until maturity, and you assume a 360 day year, then the annualized yield is:

A. 2.26%

B. 2.30%

C. 2.40%

D. 2.50%