Vaughn Corporation Is Considering the Issue of Commercial Paper and Would

Multiple Choice

Vaughn Corporation is considering the issue of commercial paper and would like to know the yield it should offer on its commercial paper. The corporation believes that a 0.2 percent default risk premium, a 0.1 percent liquidity premium, and a 0.3 percent tax adjustment are necessary to sell its commercial paper to investors. Furthermore, annualized T-bill rates are 7 percent. Based on this information, Vaughn should offer ____ percent on its commercial paper.

A) 8.0
B) 7.6
C) 7.5
D) 7.9
E) none of the above