analyse the use of Commercial Paper as a means of raising finance
Homework Answers
Corporate firms that have high credit ratings and to diversify their sources of short term financing can issue commercial paper which is an unsecured instrument. This instrument enables corporate borrowers to raise short term loans at lower interest rate.
Alternatively individuals and corporate entities can temporarily invest their short term excess funds in commercial paper instrument to earn higher returns compared to the interest rate earned on short term deposits offered by banks.
Commercial paper is considered a safe investment option as it is issued by highly rated companies. Thus commercial paper is a best source of raising finance from different investors.
A superannuation fund invests in a six-month maturity commercial paper issued by Aussie Finance, a finance...
A superannuation fund invests in a six-month maturity commercial paper issued by Aussie Finance, a finance company. Aussie Finance uses the funds to invest in a six-year maturity corporate bond issued by an oil company who plans to buy a new drill. Assume that all parties held instruments until maturity and that all instruments were issued at their face value. At the time of the corporate bond’s redemption, which of the following is NOT correct? The Superannuation’s balance sheet size...
Commercial paper. Criss-Cross Manufacturers will issue commercial paper for a short-term cash ...
Commercial paper. Criss-Cross Manufacturers will issue commercial paper for a short-term cash inflow. Criss-Cross must raise $5,500,000, and the paper will have a maturity of 182 days. If this paper has a maturity value of $50000 and is selling at an annual interest rate of 8.2%, what are the proceeds from each paper; that is, what is the discount rate on the commercial paper?
The largest holder of commercial paper is a. Money market mutual funds b. The Fed c....
The largest holder of commercial paper is a. Money market mutual funds b. The Fed c. Insurance companies d. The SEC Dealers in Treasury securities finance their inventories through a. Repurchase agreements (RPs) b. Loans from commercial banks c. Loans from the Fed d. Dealers do not hold inventories To be able to issue commercial paper, the issuer must a. Be highly rated by a credit rating agency b. Collateralize the paper c. Be endorsed by the SEC d. Both...
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just...
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Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 92-day commercial paper with a face value of $1.2 million. The firm has received initial proceeds of $1,176,121. (Note: Assume a 365-day year) What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 92 days throughout the year? b. If a brokerage fee...
9. Commercial paper. Criss Cross Manufacturers will issue commercial paper for a short-term cash inflow. Criss...
9. Commercial paper. Criss Cross Manufacturers will issue commercial paper for a short-term cash inflow. Criss Cross must raise $5,050,000, and the paper will have a maturity of 182 days. If this paper has a maturity value of $50,000 and is selling at an annual interest rate of 9.9%. what are the proceeds from each paper, that is what is the discount rate on the commercial paper? What is the discount rate on the commercial paper? % (Round to two...
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just...
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 107-day commercial paper with a face value of $1.1 million. The firm has received initial proceeds of $1,063,129. (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 107 days throughout the year? b. If a brokerage fee of $10,834 was paid from the...
Commercial paper. Criss-Cross Manufacturers will issue commercial paper for a short-term cash inflow. The paper...
Commercial paper. Criss-Cross Manufacturers will issue commercial paper for a short-term cash inflow. The paper is for 91 days and has a face value of $50,000, and the company anticipates it will sell at 96.8% of par value. Criss-Cross wants to raise $3,500,000. What is the cost of this borrowing (annual terms)? How many "papers" will it sell? What is the cost of this borrowing (three-month interest rate)?
BE13-4 Commercial Paper branch Corporation issued $12 million of commercial paper on March 1 on a...
BE13-4 Commercial Paper branch Corporation issued $12 million of commercial paper on March 1 on a nine-month note. Interest was discounted at issuance at a 9% discount rate. Prepare the journal entry for the issuance of the commercial paper and its repayment at maturity No General Journal Credit Debit Date March 1 1 2 3
(Cost of commercial paper) Tri-State Enterprises plans to issue commercial paper for the first time in...
(Cost of commercial paper) Tri-State Enterprises plans to issue commercial paper for the first time in the firm's 35-year history. The firm plans to issue $550,000 in 270-day maturity notes. The paper will carry a 10.75 percent rate with discounted interest and will cost Tri-State $10,000 (paid in advance) to issue. Note: Assume a 30-day month and 360-day year. a. What is the effective cost of credit to Tri-State? b. What other factors should the company consider in analyzing whether...
You can buy commercial paper of a major US corporation for $495,000. The paper has a...
You can buy commercial paper of a major US corporation for $495,000. The paper has a face value of $500,000 and is 45 days from maturity. Calculate the discount yield and bond equivalent yield on the commercial paper.
Need help solving this one.
Thank you!
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 92-day commercial paper with a face value of $1.2 million. The firm has received initial proceeds of $1,176,121. (Note: Assume a 365-day year) What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 92 days throughout the year? b. If a brokerage fee...
9. Commercial paper. Criss Cross Manufacturers will issue commercial paper for a short-term cash inflow. Criss Cross must raise $5,050,000, and the paper will have a maturity of 182 days. If this paper has a maturity value of $50,000 and is selling at an annual interest rate of 9.9%. what are the proceeds from each paper, that is what is the discount rate on the commercial paper? What is the discount rate on the commercial paper? % (Round to two...
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 107-day commercial paper with a face value of $1.1 million. The firm has received initial proceeds of $1,063,129. (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 107 days throughout the year? b. If a brokerage fee of $10,834 was paid from the...
BE13-4 Commercial Paper branch Corporation issued $12 million of commercial paper on March 1 on a nine-month note. Interest was discounted at issuance at a 9% discount rate. Prepare the journal entry for the issuance of the commercial paper and its repayment at maturity No General Journal Credit Debit Date March 1 1 2 3
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