A company is considering an issue of Commercial Paper (CP) to raise $15 million. The issue will mature in 30 days. It will be issued at a discount of 40 basis points. The -0,4% dealer will charge an annualized fee of 10 pasis points and will require a backup letter 0.1% of credit (L/C) to be issued in its favour at a cost of 25 basis points. 0.25%. Required: Assuming a 360-day year, calculate: Par value Dolar discount a) the usable funds that the company will raise upon issue of the CP b) the pro-rated dealer fee c) the pro-rated L/C fee d) the effective annual interest that the company is paying for the credit it raises through the issue of CP -

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Question 2
A company is considering an issue of Commercial Paper (CP) to raise $15 million. The
issue will mature in 30 days. It will be issued at a discount of 40 basis points. The
dealer will charge an annualized fee of 10 pasis points and will require a backup letter
0.1%
0,4%
of credit (L/C) to be issued in its favour at a cost of 25 basis points.
0.25%
Required:
Assuming a 360-day year, calculate:
Par value Dollar discount
a) the usable funds that the company will raise upon issue of the CP
b) the pro-rated dealer fee
c) the pro-rated L/C fee
d) the effective annual interest that the company is paying for the credit it raises
through the issue of CP
Transcribed Image Text:Question 2 A company is considering an issue of Commercial Paper (CP) to raise $15 million. The issue will mature in 30 days. It will be issued at a discount of 40 basis points. The dealer will charge an annualized fee of 10 pasis points and will require a backup letter 0.1% 0,4% of credit (L/C) to be issued in its favour at a cost of 25 basis points. 0.25% Required: Assuming a 360-day year, calculate: Par value Dollar discount a) the usable funds that the company will raise upon issue of the CP b) the pro-rated dealer fee c) the pro-rated L/C fee d) the effective annual interest that the company is paying for the credit it raises through the issue of CP
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