The cost of commercial paper (i.e., the interest rate) _____.
a. increases as the paper sells for a premium
b. decreases as the paper sell for a discount
c. decreases as the paper's price increases
d. increases as the paper's price increases
A commercial paper refers to an unsecured short-term debt, which is issued by a firm. Usually, commercial papers aim to fund the firm's purchase orders, payrolls, other short-term obligations.
Answer and Explanation: 1
The answer is c. decreases as the paper's price increases
The cost of a commercial paper and its value have an inverse relationship. Hence, a decrease in the interest rate will raise the value of the commercial paper and vice versa.
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fromChapter 8 / Lesson 10
A great way for companies with high credit ratings to raise short term cash for operating purposes is through commercial paper. Most large public companies issue commercial paper.