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1. Sara, treasurer for SAFECO Instruments, Inc., updated her firm's short-term cash forecast only to discover that the firm will suffer a cash shortage of

1. Sara, treasurer for SAFECO Instruments, Inc., updated her firm's short-term cash forecast only to discover that the firm will suffer a cash shortage of $15 million for a period of 30 days. One alternative is to liquidate a portion of her marketable securities portfolio, but with interest rates up, this is not a good alternative. She just learned from one of her commercial paper dealers that paper in the 30-day range is in demand by investors and that the asked discount rates are comparably good at about 3.7%. The dealer's annual fee is 10 basis points, and the annual commitment fee on a back-up line of credit is 25 basis points. a. Estimate the effective cost of the commercial paper assuming this is the only commercial paper issue she would make during the year. b. Estimate the effective cost of the commercial paper assuming that there will be recurring issues of commercial paper all year long

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