Saskatchewan Wheat Fields Inc

question 21

Multiple Choice

Saskatchewan Wheat Fields Inc.is planning to issue $100 million of commercial paper with 30 days to maturity.There is a 3% probability that the firm will default on the issue and the investor will receive $40 million (or 40 cents on the dollar) .The investor's required rate of return is 5%.If the firm wishes to issue the commercial paper at par,the promised yield must be:

• A) 2.29%
• B) 7.01%
• C) 27.42%
• D) 42.27%

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