Question 4: (14 marks)

The banks of Australian and Canadian companies that purchase electronic tools from HighTech provides letters of credit and are required to conduct payment within 180 days after the goods have been shipped to them. Therefore, the banks issue bankers acceptances to HighTechs bank. There are currently two bankers acceptances that HighTech can request his bank to discount: Bankers acceptance one is from Canada. Its maturity value is $1,500,000 and it will mature in 45 days. The bankers acceptance commission is 1.35% and the market rate is 1.50%. The other bankers acceptance is from Australia. Its maturity value is $3000,000 and it will mature in 120 days. The bankers acceptance commission is 0.95% and the market rate is 1.25%. The CEO mentions that HighTechs pays an average of 1.1% on existing loans. He requires information of whether it is viable to discount any of the bankers acceptances or not. Calculate the bond equivalent rate that HighTech will receive for each of the bonds when they are discounted and compare it to the average cost of HighTechs debt to determine whether any of the bankers acceptances should be discounted.

Calculate the value of the Canadian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the discounted value of the Canadian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the bond equivalent rate of the Canadian bankers acceptance by applying the correct formula in the space below: (2 marks)

Should the Canadian bankers acceptance be discounted if you compare it to the average cost of existing loans to HighTech? Provide one reason for your answer in the space below: (1 mark)

Calculate the value of the Australian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the discounted value of the Australian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the bond equivalent rate of the Australian bankers acceptance by applying the correct formula in the space below: (2 marks)

Should the Australian bankers acceptance be discounted if you compare it to the average cost of existing loans to HighTech? Provide one reason for your answer. (1 mark)