In what denominations and for what periods do corporations issue commercial paper?
AIn multiples of $1,000 for 5 to 20 years
BIn multiples of $5,000 for 10 to 30 years
CIn multiples of $100,000 for 3 to 270 days
DIn multiples of $500,000 for 2 to 5 years
Answer & Solution
Correct answer: C. In multiples of $100,000 for 3 to 270 days
1. Commercial paper is short-term financing, so its life is measured in days rather than years.
2. Corporations issue it in multiples of $100,000.
3. The periods range from 3 to 270 days, all comfortably inside one year.
4. The 270-day ceiling keeps every issue inside the short-term category, since a maturity beyond a year would make it long-term debt.
5. Multiples of $1,000 with 10 to 30 year maturities describe corporate bonds instead.
6. The large denomination is why commercial paper is a tool for major corporations rather than small firms.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.3 Obtaining Short-Term Financing_
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