What is the difference between commercial papers and corporate bonds?
From Investopedia:
An example of commercial paper is when a retail firm is looking for short-term funding to finance some new inventory for an upcoming holiday season. The firm needs million and it offers investors .1 million in face value of commercial paper in exchange for million in cash, according to prevailing interest rates. In effect, there would be a [CO].1 million interest payment upon maturity of the commercial paper in exchange for the million in cash, equating to an interest rate of 1%.
This looks and smells very much like corporate bonds. Except for:
1. They aren't registered with the SEC
2. They can't be longer than 270 days
Is there any difference between commercial papers and corporate bonds?
(1)1 Comments
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Just the term. Commercial paper is short-term borrowing - days instead of years. Structurally they are similar in that they are unsecured obligations, but commercial paper doesn't pay coupons - it's just sold at a discount to create value.
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