Bacon Signs Inc. has planned a 3-month issue of commercial paper with a face value of $15,000,000. The paper is set to sell at 99.5% of face value. What is the EAR?
A) 2.025%
B) 2.250%
C) 2.500%
D) 2.512%
Answer: A
Explanation: A) FV(Face Value) = 100; PV(after the 0.5% discount) = 99.5; N = 1.
EAR = (1 + periodic rate)m - 1 = (1.005025)4 - 1 = 2.025%.
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