Short$-$term bank loans usually are arranged under an ongoing line of credit with a bank or group of banks. When interest is discounted from the face amount of a note $($a type of noninterest$-$bearing note$),$ the effective interest rate is higher than the stated discount rate. Large, highly rated firms sometimes sell commercial paper directly to the buyer $($lender$)$ to borrow funds at a lower rate than through a bank loan.

Knowledge Check $01$

Which of the following descriptions about commercial paper are true?

Note: Select all that apply.

Check All That Apply

Allows a company to borrow cash without having to follow formal loan procedures and paperwork.

Allows a company to borrow cash without having to follow formal loan procedures and paperwork.

Interest is often discounted at issuance

Interest is often discounted at issuance

Interest rate is often higher than in a bank loan

Interest rate is often higher than in a bank loan

Sold in denominations of $$50,000$

Sold in denominations of $$50,000$