Question
Assume Markit Corp. wants to raise short term funds by issuing commercial papers.It has two options: A) issue a six-month commercial paper in the US
Assume Markit Corp. wants to raise short term funds by issuing commercial papers.It has two options: A) issue a six-month commercial paper in the US at a discount interest rate of 4%, B) issue a Eurodollar commercial paper for six months at interest rate of 4.2%.
a)Which alternative is better if the face value of the CP is $100 million?
b)Assume Markit can get standby letter of credit from Wells Fargo Bank to support its commercial paper for a fee of $50,000.In that case it can issue the CP in the US at 3.8%.Is getting the letter of credit worth it?
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