Ignoring Transaction Costs, the Cost of Borrowing with Commercial Paper

question 41

Multiple Choice

Ignoring transaction costs, the cost of borrowing with commercial paper is equal to

• A)the yield on T-bills of the same maturity.
• B)the yield earned by investors holding the paper until maturity.
• C)the federal funds rate.
• D)the par value of the paper.

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Definitions:

Indirect Tax

Tax on a thing rather than on a particular person; for example, sales tax.

Social Security Tax

A payroll tax collected to fund the Social Security program, which provides retirement, disability, and survivorship benefits to eligible Americans.

Government Role

The involvement and responsibilities assumed by a government in regulating and guiding the economy, protecting citizens, and providing public services.

Federal Tax Revenue

The income received by the federal government from taxes imposed on individuals, corporations, and other entities, used to fund public goods and services.