2. The time from acceptance to maturity on a $1,000,000 banker’s acceptance is 120 days.

The importer’s bank’s acceptance commission is 1.75 percent and the market rate for 120-

day B/As is 5.75 percent. What amount will the exporter receive if he holds the B/A until maturity? If he discounts the B/A with the importer’s bank? Also determine the bond equivalent yield the importer’s bank will earn from discounting the B/A with the exporter.

If the exporter’s opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?