Following a purchase from a US exporter, the importers bank, Southern Bank, creates a bankers acceptance (a B/A) of USD2,000,000. The time from acceptance to maturity on this acceptance is 91 days.

Southern Banks acceptance commission is 2% and the market rate for 91-day B/As is 5.5% per annum.

Assume a 360 day count except part (iv) where a 360 or 365 may need to be used.

For numerical answers, give your answer to two decimal places unless stated otherwise, and do not enter any symbols such as dollars, commas or percent signs.

REQUIRED:

(i) What amount will the US exporter receive if he holds the B/A until maturity to the nearest dollar? [2 Marks].

$______________

ii) What will the commission be? (To the nearest dollar) (2 Marks)

$_______________

iii) What amount will the US exporter receive if he discounts the B/A with Southern Bank today? (to the nearest dollar) [2 Marks]

$________________

iv) Calculate the bond equivalent yield (on a per annum basis) which Southern Bank will earn from discounting the B/A with the exporter today. (to 2 decimal places) [4 Marks]

__________% per annum