Series 7 practice questioneasyMoney Market — Commercial Paper
Commercial paper is best described as:
- AShort-term unsecured promissory notes issued by corporations, typically maturing in 270 days or less✓ Correct answer
- BLong-term corporate bonds with maturities of 10 to 30 years
- CGovernment-backed certificates of deposit
- DMunicipal bonds with maturities of less than one year
Explanation
Why A — Short-term unsecured promissory notes issued by corporations, typically maturing in 270 days or less
Commercial paper is a short-term, unsecured debt instrument issued by highly rated corporations to finance short-term liabilities such as payroll, accounts payable, and inventory. Maturities typically range from 1 to 270 days. The 270-day maximum avoids the requirement to register with the SEC under the Securities Act of 1933. Commercial paper is issued at a discount and redeemed at face value.
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