Suppose IBM Decided to Issue Commercial Paper in Denominations of $5,000

question 92

Multiple Choice

Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money. Since the commercial paper is secured only by IBM's reputation,

• A) IBM does not have to pay back the principal.
• B) IBM has to pay interest rates higher than those charged by commercial banks for short-term loans.
• C) no interest is paid.
• D) no collateral is involved.
• E) the commercial paper can be issued only in $1,500 or $10,000 denominations.

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Definitions:

Standard Deviation

A statistical measure of the dispersion or variability in a set of data points, often used in finance to quantify the volatility of an investment.

Return

The increase or decrease in value of an investment during a set period, represented as a percentage of the investment's starting price.

S&P/TSX Composite Index

A market index representing the performance of the Canadian stock market, compiled by the Standard & Poor’s company.

Diversifiable Risks

Risks associated with individual investments that can be reduced or eliminated through portfolio diversification.