Question
A treasury manager for Firm Z has determined a dire need for $10,000,000 in cash for a period of 20 days (it is expected that
A treasury manager for Firm Z has determined a dire need for $10,000,000 in cash for a period of 20 days (it is expected that Firm Z will collect on a major customer's receivable balance within the next 20 days). One of Firm Z's investment bankers had indicated that the firms with comparable default risk are issuing 20 day commercial paper at annual discount rates of 2.7%. The dealer's annual fee is 0.18% and the annual commitment fee on a backup line of credit is 0.36%.
What is the amount of funds raised through the issuance?
| a. | $9,985,000 | |
| b. | $8,519,725 | |
| c. | $14,953,750 | |
| d. | $16,842,640 |
What is the commitment fee?
| a. | $4,687.50 | |
| b. | $2,000 | |
| c. | $5,235.50 | |
| d. | $3,125 |
What is the effective cost?
| a. | 5.31% | |
| b. | 4.12% | |
| c. | 3.29% | |
| d. | 1.68% |
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Behavioral Finance
Authors: Edwin Burton, Sunit N. Shah
1st Edition
111830019X, 978-1118300190
