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:

Equity Valuation

The process of determining the fair market value of a company's equity or shares.

Positive Abnormal Earnings

Earnings that exceed what is normally expected, based on historical trends or industry standards, often indicating superior performance.

Sustainable Earnings

Refers to the portion of a company's income considered to be predictable, repeatable, or likely to continue in the future.

Repeat Customers

Individuals or entities that make more than one purchase from a business, indicating customer loyalty and satisfaction.