Magna Corporation has an issue of commercial paper with a face value of $1,000,000 and a maturity of six months

Finance Apr 25, 2021

Magna Corporation has an issue of commercial paper with a face value of $1,000,000 and a maturity of six months. Magna received net proceeds of $973,710 when it sold the paper. What is the effective annual rate? (EAR) of the paper to? Magna?

The EAR of this paper to Magna is ?%.

Expert Solution

Computation of Effective Annual Rate of the Paper to Magna:

Effective Annual Rate = ((Face Value/Net Proceeds)^(1/n))-1

=((1000000/973710)^(1/0.5))-1

=5.47%

So, the Effective annual rate of paper is 5.47%

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