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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

Compared with a bank loan, issuing commercial paper is most likely to give a highly rated corporation:

Commercial paper usually gives a highly rated corporation a lower borrowing cost than a bank loan, but the issuer faces market access and rollover risk if investors stop buying. The paper is short term and typically unsecured, not longer term or collateral-backed.

  1. ALower borrowing cost but exposure to market access riskCorrect
  2. BLonger maturity but a higher stated interest rate
  3. CCollateral-backed funding with covenant protection for lenders

Explanation

Highly rated issuers can usually borrow in the paper market more cheaply than from banks, but they depend on investors willingness to roll the paper over, which is market access risk. Paper is short term, not longer than bank loans, and it is generally unsecured with few covenants.

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