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What is the liquidity premium on the commercial paper

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Problem -

a. A corporation is planning to sell its 90-day commercial paper to investors by offering an 8.4 percent yield. If the three-month Treasury bill's annualized rate is 7 percent, the credit risk premium is estimated to be 0.6 percent, and there is a 0.4 percent tax adjustment, then what is the liquidity premium on the commercial paper?

b. Suppose that, because of unexpected changes in the economy, the credit risk premium increases to 0.8 percent. Assuming that no other changes occur, what is the appropriate yield to be offered on the commercial paper?

Reference no: EM132912323

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