B. This answer does not include the $1,200 of transaction costs, which must be included as a cost to Corbin and it considers that all of the $1,000,000 face amount was received by Corbin. See the correct answer for a complete explanation.

C. The effective annual interest for the commercial paper is calculated by dividing the cost (including discounted interest or other costs) by the amount of cash actually received. The cost will be $21,200, made up of the $20,000 discount that is given to sell the paper and the $1,200 transaction cost. Corbin will receive only $980,000 from this issuance, so the effective cost is calculated so far as ($21,200 / $980,000). This gives us a rate of 2.16%. However, this is not the annual rate since it is only three-month paper. So, we need to multiply this by 4, giving the annual rate of 8.66%.

D. This answer does not include the $1,200 of transaction costs, which must be included as a cost to Corbin. See the correct answer for a complete explanation.