Computing appropriate yield
For the company to determine its yield, the company will have to pay the investors more money than the treasurer bill considering the high risk of the commercial paper. Therefore, the appropriate yield that the company should offer to the company will be:
(Treasure bill rate+defult premium rate +liquid premium rate and less the tax adjusted tax rate)
The yield for commercial paper = (3.1%+0.8%+0.1%-0.2%)
The company should offer a yield of 3.8%
The company is supposed to add the liquid premium and default risk premium because the investors will require the return of the money they have given the company since they would have remained with that amount in liquid form and run their business. Also, they will require compensation from the company because the companies are insecure when compared to a government institution. However, the company should reduce tax adjustment since the fund belongs to the government. In summary, the company is supposed to offer high rates than the treasurer bonds.