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Hi sir, l was trying to study commercial paper from the bpp text book but l did not understand.Kindly explain that to me
It is short term borrowing.
Suppose you wanted to borrow $1,000 for a short period. One way is to borrow $1,000 from someone and give them a written promise (the commercial paper) to pay them back $1,020 at the end of a fixed period (say after 30 days). The extra $20 is effectively the same as paying them interest, but instead of actually quoting interest they get a promise to pay them $1,020 but they only had to pay $1,000 for the promise so we say it is being issued at a discount.
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