Amalgamated Appliance Inc. has planned a 3-month issue of commercial paper with a face value of $25,000,000. The paper is set to sell at 98.5% of face value. What is the EAR?
A) 6.08%
B) 6.23%
C) 3.04%
D) 3.12%
Answer: B
Explanation: B) FV(Face Value) = 100; PV(after the 1.5% discount) = 98.5; N = 1.
EAR = (1 + periodic rate)m - 1 = (1.015228)4 - 1 = 6.23%.
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