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Which of the following is true of commercial paper?Multiple ChoiceSales of commercial paper are restricted to only the largest and most financially stable companies.Commercial paper is one of the least popular short-term investments.Commercial paper is the equivalent of a certificate of deposit.Commercial paper must be bought and sold for a minimum duration of 30 days.

Question

Which of the following is true of commercial paper?Multiple ChoiceSales of commercial paper are restricted to only the largest and most financially stable companies.Commercial paper is one of the least popular short-term investments.Commercial paper is the equivalent of a certificate of deposit.Commercial paper must be bought and sold for a minimum duration of 30 days.

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Solution

The statement "Sales of commercial paper are restricted to only the largest and most financially stable companies" is true of commercial paper.

Commercial paper is a short-term, unsecured promissory note issued by corporations typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Due to its unsecured nature, only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. Hence, it is usually issued by large and financially stable companies.

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