Assume that a firm issues $500,000,000 of U.S. commercial papers (and therefore uses a 360-day year for CP calculations) with a 30-day maturity at a discount of 0.5%. The annualized dealer fee is 0.175% and the cost of a backup line of credit is 0.25%. a. What is the amount of usable funds? b. What is the amount of dealer fee? c. What is the amount of backup line of credit? d. What is the annualized cost of the paper?

Assume that a firm issues $500,000,000 of U.S. commercial papers (and therefore uses a 360-day year for CP calculations) with a 30-day maturity at a discount of 0.5%. The annualized dealer fee is 0.175% and the cost of a backup line of credit is 0.25%. a. What is the amount of usable funds? b. What is the amount of dealer fee? c. What is the amount of backup line of credit? d. What is the annualized cost of the paper?

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

Section: Chapter Questions

Problem 1PS

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Concept explainers

Trade Credit

Answer- a- Before Shipping of goods

Question

Assume that a firm issues $500,000,000 of U.S.
commercial papers (and therefore uses a 360-day year for
CP calculations)
with a 30-day maturity at a discount of 0.5%. The
annualized dealer
fee is 0.175% and the cost of a backup line of credit is
0.25%.
a. What is the amount of usable funds?
b. What is the amount of dealer fee?
c. What is the amount of backup line of credit?
d. What is the annualized cost of the paper?

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