Does anyone know whether there is really risk of default with commercial paper?

Commercial paper | Business & Finance homework help

Yes, there is a risk of default with commercial paper. This type of debt instrument is issued by corporations to raise short-term funds and typically matures in 270 days or less. Commercial paper requires the issuer to make timely payments on the principal and interest due, but if it cannot do so, then it has defaulted. Defaulting on commercial paper can have serious consequences for issuers as it hurts their credit standing and makes them less attractive to investors going forward.

Default risk for commercial paper can be reduced through credit ratings from agencies such as Moody’s or Standard & Poor’s (S&P). These agencies rate companies based on various criteria such as financials, management, market dynamics and other factors. Ratings range from Aaa (the highest) to C (the lowest). Companies with higher ratings will generally have lower default risk while those with lower ratings may present more danger of not being able to repay the money they borrowed in full when it comes due.

Commercial paper also carries liquidity risk since investors can find themselves locked into investments that are hard to liquidate at short notice should they need access to their money quickly before maturity date arrives. Investors should therefore assess the potential risks associated with any particular investment before making a commitment so they understand what might happen if something goes wrong along the way.