Question
A company is setting up their commercial paper program. The face value of the issue will be $100 M and will have a 30 day
A company is setting up their commercial paper program. The face value of the issue will be $100 M and will have a 30 day maturity and a discount rate of 5.75%. The dealer has quoted an annual rate of 58 bp for their fee and the bank has quoted an annual rate of 85 bp for the backup line of credit on this issue. You may assume that this issue will be rolled over every 30 days throughout the year. Given this information, what is the effective annual rate on this issue? Using the information from the above problem, what would be the Bond Equivalent Yield to investor who purchases this commercial paper?
answer is 5.86%
PLEASE EXPLAIN WHY STEP-BY-STEP
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
