The Commercial Paper Rate Is Higher Than That on Treasury

question 29

Multiple Choice

The commercial paper rate is higher than that on Treasury bills for the same maturity because ________.

• A) the investor in Treasury bills is exposed to credit risk.
• B) interest earned from investing in Treasury bills is exempt from state and local income taxes.
• C) commercial paper is more liquid than Treasury bills.
• D) the investor in commercial paper is exposed to less risk.

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Definitions:

Stock Split

A corporate action where a company divides its existing stock into multiple shares to boost the liquidity of the shares, without changing the market capitalization.

Percent Of Ownership

The portion of a company or asset that an individual or entity owns, typically expressed as a percentage.

No-Par Stock

Shares issued without a specified face value, allowing companies flexibility in setting share prices and accounting for equity.

Stated Value

A value assigned to a company's shares that does not have a par value; often used in accounting for preferred stock.