Life.com issued $20 million of commercial paper on April 1 on a nine-month note.

Question

Life.com issued $20 million of commercial paper on April 1 on a nine-month note. Interest was discounted at issuance at a 11% discount rate. Complete the below table to calculate the effective interest rate on the commercial paper. (Do not round intermediate calculation. Enter your answers in whole dollars. Round "Annual Effective Rate" to 1 decimal place. (i.e., 0.123 should be entered as 12.3).)

PrincipalxAnnual RatexTime

A.) Calculation on Discount Principle is 20,0000,000 Calculate Annual Rate and time

B.) Discount: Calculate Principle , 9 month rate, conversion factor and annual effective rate

C.) Calculate Proceeds

Explanation / Answer

Answer

Annual Effective Rate:

=Discount / cash proceeds *12/ period of commercial paper*100

=1.65/18.35*12/9*100

=11.989%

=12%(Aprrox)

Notes payable (face amount) $20 million Discount on Notes payable($20*11%*9/12) $1.65 million Cash diff. $18.35 million

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.