A treasury manager is examining the potential to issue commercial paper based on the following assumptions:...
A treasury manager is examining the potential to issue commercial paper based on the following assumptions:
Face Value = $25,000,000
Discount Rate = 0.75%
Dealer Fee = 0.25%
Commitment Fee = 0.15%
Days to Maturity = 30
Based on these assumptions, what is the amount of usable funds through the commercial paper issuance?
| a. |
$24,979,166.67 |
|
| b. |
$24,976,041.67 |
|
| c. |
$24,984,375.00 |
|
| d. |
$25,000,000.00 |
Homework Answers
Face Value = $25,000,000
Discount Rate = 0.75%
Dealer Fee = 0.25%
Commitment Fee = 0.15%
Days to Maturity = 30 days or 1 month
Total cost (%) = Discount rate + dealer Fees + Commitment
fees
= 0.75% + 0.25% + 0.15%
= 1.15%
Total cost (%) per month = 1.15%/12 = 0.09583%
Fund available = $25,000,000 * (1 - 0.0009583)
= $24,976,041.67
Amount of usable funds through the commercial paper issuance = $24,976,041.67
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