You wish to invest $100,000 for three months and are considering high quality (i.e., A-1 / P-1 rated) commercial paper (“CP”) or a bank certificate of deposit (“CD”) as your alternatives. The current yield for 3-month CP of high quality non-financial issuers is 2.15%, while the best 3-month CD rate you can find from a commercial bank is 1.90%. Assuming the commercial bank is not financially stronger than the CP issuer, what might explain this yield differential?

Answer rating: 100% (QA)

The commercial bank is not financially stronger than the CP issuer meaning that the CP issuer is l... View the full answer