Question
The Treadwater Bank wants to raise $1,000,000 using three-month commercial paper. The net proceeds to the bank will be $987,000. Magna Corporation has an issue
The Treadwater Bank wants to raise $1,000,000 using three-month commercial paper. The net proceeds to the bank will be $987,000. Magna Corporation has an issue of commercial paper with a face value of 1,000,000 and a maturity of six months. Magna received net proceeds of 970,109 when it sold the paper. Assume that the prime rate is 7.8 % APR, compounded quarterly. How much dollar savings in interest did Treadwater and Magna achieve by accessing the commercial paper market?
1. How much dollar savings in interest did Treadwater achieve by accessing the commercial paper market?
2. How much dollar savings in interest did Magna achieve by accessing the commercial paper market?
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