Vaughn Corporation Is Considering the Issue of Commercial Paper and Would

question 27

Multiple Choice

Vaughn Corporation is considering the issue of commercial paper and would like to know the yield it should offer on its commercial paper. The corporation believes that a 0.2 percent default risk premium, a 0.1 percent liquidity premium, and a 0.3 percent tax adjustment are necessary to sell its commercial paper to investors. Furthermore, annualized T-bill rates are 7 percent. Based on this information, Vaughn should offer ____ percent on its commercial paper.

• A)8.0
• B)7.6
• C)7.5
• D)7.9
• E)none of the above

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Definitions:

Silver Acetate

A chemical compound with the formula AgC2H3O2, used in plating and as a photographic agent.

NaCl

Sodium chloride, commonly known as table salt, an ionic compound consisting of sodium and chloride ions.

AgCl

Silver chloride, a white crystalline solid that is photosensitive and less soluble in water.

Spectator Ions

Ions that are present in a chemical reaction but do not participate in it, remaining unchanged throughout the reaction.