Commercial paper is a type of security that is issued by many large companies. Here are the basics of commercial paper and how it works.

Commercial Paper

Commercial paper is a type of debt instrument that is issued by a company in order to cover short-term costs. Most of the time, these are issued to cover such things as payroll or operating expenses. A company will issue this as a type of promissory note. With commercial paper, there is no collateral that is backing up the note. You simply get a promise from the company that they are going to pay you back. These notes have a maturity of less than 270 days. Companies that issue commercial paper are going to have very high credit ratings and solid business history behind them.

Investing In Commercial Paper

Individual investors do not invest directly into commercial paper. However, through the use of money market mutual funds and other mutual funds, you can get involved with commercial paper. Commercial paper makes an ideal investment for money market mutual funds because of the short maturity dates. With commercial paper, you will get a higher interest rate for longer maturation terms. Many institutional investors regularly invest in commercial paper as well. 

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