Investments, tenth edition

  Commercial Paper 

 Large, well-known companies often issue their own short-term unsecured debt notes rather 

than borrow directly from banks. These notes are called    commercial  paper.       Very  often, 

commercial paper is backed by a bank line of credit, which gives the borrower access to 

cash that can be used (if needed) to pay off the paper at maturity. 

 Commercial paper maturities range up to 270 days; longer maturities would require 

registration with the Securities and Exchange Commission and so are almost never issued. 

Most often, commercial paper is issued with maturities of less than 1 or 2 months. Usually, 

it is issued in multiples of $100,000. Therefore, small investors can invest in commercial 

paper only indirectly, via money market mutual funds. 

 Commercial paper is considered to be a fairly safe asset, because a firm’s condition 

presumably can be monitored and predicted over a term as short as 1 month. 

1

 Both of these “errors” were dictated by computational simplicity in precomputer days. It is easier to compute 

percentage discounts from a round number such as par value rather than purchase price. It is also easier to annual-

ize using a 360-day year, because 360 is an even multiple of so many numbers.

Sep   06  12 

51 

0.080 

0.075  0.000  0.076

Oct    04  12 

79 

0.085 

0.080  0.000  0.081

Nov   01  12 

107 

0.110 

0.100  0.005  0.101

Nov   29  12 

135 

0.110 

0.105  0.000  0.106

Dec   20  12 

156 

0.130 

0.125  0.005  0.127

Apr   04  13 

261 

0.160 

0.150  0.005  0.152