CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
Compared with bank loans, commercial paper issued by a large corporation is most likely to:
Commercial paper is most likely backed by a bank backup line of credit. This reduces rollover risk if the issuer cannot sell new paper to repay maturing paper. CFA treats it as short-term, unsecured funding for creditworthy issuers, not multi-year debt.
- Abe issued by firms with weak credit quality.
- Bbe backed by a bank line of credit to reduce rollover risk.Correct
- Ccarry a long maturity of several years.
Explanation
Commercial paper is short-term, unsecured, and issued mostly by firms with strong credit. Issuers commonly keep backup lines of credit with banks to repay paper if it cannot be rolled over. Weak credit and multi-year maturities do not fit the market.
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