Read the following case study and answer questions.

Company X raised 10,00,000 through issue of shares in open market to raise funds to establish the business of selling electronic goods. Later on for procuring funds for next six months, Company X was dependent on sources like commercial paper, and commercial bill. The issue of share done in open market was oversubscribed due to good reputation of company. These sources help the company to mobilise a large amount of money for long as well as short run. The business succeeded in its operations using these funds.

Commercial papers are sold at............... and redeemed at par.

Discount

The correct answer is Option (2) - Discount

Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at a discount and redeemed at par. The original purpose of commercial paper was to provide short-terms funds for seasonal and working capital needs.