Question

Tina's Apple Company would like to manufacture and market a new packaging. Tina's has sold an issue of commercial paper for $1,500,000 and maturity of 90 days to finance the new project. Compute the annual interest rate on the issue of commercial paper if the value of the commercial paper at maturity is $1,650,000 (assuming 360 days in a year).

Answer 1

40%

Step-by-step explanation:

Tina's Apple Company would like to manufacture and market a new packaging. Tina's has sold an issue of commercial paper for $1,500,000 and maturity of 90 days to finance the new project. Compute the annual interest rate on the issue of commercial paper if the value of the commercial paper at maturity is $1,650,000 (assuming 360 days in a year).

Interest paid = $1,650,000 - 1,500,000

= $150,000

Annual interest rate = ($150,000/$1,500,000) (360/90)

= 40%