Suppose Shreiker Incorporated is planning to massively expand inventory and will issue 26-week commercial paper to obtain
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Suppose Shreiker Incorporated is planning to massively expand inventory and will issue 26-week commercial paper to obtain funding for the expansion. Prior to issuing the commercial paper, Shreiker Incorporated must determine the yield that it must offer to successfully sell the debt securities. Upon further analysis of the key characteristics used to determine the appropriate yield of a security, Shreiker Incorporated learns the following:
1. | The annualized yield on a risk-free 26-week Treasury bill is 9 percent. |
2. | A 2 percent credit risk premium is needed to compensate investors for credit risk. |
3. | A 0.5 percent liquidity premium is needed to compensate investors due to the low liquidity of the Treasury bills. |
4. | A 0.2 percent tax adjustment is needed to compensate investors for a difference in tax status. |
Calculate What is the appropriate yield to be offered on the commercial paper?
Related Book For
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
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