How are commercial papers issued with low interest rates categorized___________?
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Answer: D. better credit rating
Explanation
Issuers with very strong credit ratings can offer commercial papers with lower interest rates. Investors accept lower yields because the risk of borrower default is extremely minimal. High creditworthiness allows prime corporations to borrow short-term funds very cheaply. Commercial paper is an unsecured, short-term debt instrument issued by large corporations. Credit rating agencies evaluate issuer financial stability before assigning commercial paper grades. Prime-rated paper trades actively in money markets due to its exceptional safety profile.
Financially sound utility companies issue low-rate commercial paper to fund seasonal inventory. Institutional money market funds purchase top-rated commercial paper to earn safe yields. Deteriorating corporate credit ratings immediately force companies to pay higher interest rates. Payables rating is an incorrect descriptor not used by credit rating agencies. Commercial rating is a generic phrase rather than the specific credit quality category. Poor credit rating would result in higher interest rates to compensate for default risk.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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