a. Consider the following CP issuance. It has a yield of 1.95%, 95 days to maturity and a face value of $1 mln.

i. If you buy the CP issuance today, what will be its price?

ii. How much in interest will you earn if you hold the CP until maturity?

iii. Assume that rather than holding it to maturity, you sell the CP to another investor in 30 days. At this time the CP yield is 2.15%. At what price would it sell for?

b. Your firm has a line of credit (LoC) with BMO with a limit of $2.5 mln. The APR on the LoC is 6.5% and the commitment fee rate is 2.5%.

i. If you borrow $450,000 on the line of credit for 4 months, what is your EAR?

ii. If you borrow $750,000 on the line of credit for a full year, what is the EAR?

iii. If you borrow $350,000 for the first six months of the year and $700,000 for the next six months, what is your EAR?

c. You enter into a loan to borrow $25,000 for three months from RBC. The APR is 3.5% and the loan has an origination fee of 1.15%. What is the loans EAR?

d. You wish to borrow funds to upgrade your firms line of vehicles. You have been offered two loans, as follows:

BMO offers you a loan with an APR of 6.25% and a compensating balance of 1.65%.

RBC offers you a loan with an APR of 6.00% and a loan origination fee of 2.00%.

If the loan is for one year, which do you prefer? Justify your answer.