What is a commercial paper?

A commercial paper is defined as a short-term unsecured promissory note issued by a company to raise funds for working capital needs, such as inventory purchases or payroll. This financial instrument typically has maturities that range from a few days to up to 270 days, allowing companies to meet immediate funding requirements without the need for collateral. Its unsecured nature means that it does not require specific assets to back the issuance, making it a flexible financing option for corporations with good credit ratings.

In contrast, a long-term bond is a debt security that has a longer maturity period, often up to 30 years, and typically requires a higher level of security or collateral. Equity investments represent ownership in a company, rather than a debt arrangement. Lastly, a bank loan refers to borrowed funds from a financial institution, which may involve a more structured repayment plan and often requires collateral. Each of these options deviates from the definition of commercial paper, reinforcing the accuracy of the answer.