Question

"Commercial Paper" is a term used to describe short-term unsecured debt issued by large corporations. Which of the following statements is accurate when discussing the term commercial paper?
a. All three statements are true when discussing the term commercial paper
b. Can sometimes be backed by a bank line of credit
c. Referred to as "CP"
d. Considered to be a fairly safe asset, given that a firm's condition presumably can be monitored and predicted

Answer 1

Answer:

a. All three statements are true when discussing the term commercial paper

Explanation:

A commercial paper is an unsecured debts instrument used by large corporations to finance short-term credit needs. They have a maturity of 9 months or less and are usually issued at a discount.  Commercial paper pay a fixed interest rate.

Commercial papers are issued by large and highly rated corporations, which make them relatively safe.  Commercial papers or CP's offer a higher interest rate compared to secured investments and have a short maturity period making them attractive to investors. In some cases, wealthy individuals, commercial institutions, or banks may back a commercial paper.