A Corporation Is Planning to Issue $10 Million Worth of 180-Day

question 36

Multiple Choice

A corporation is planning to issue $10 million worth of 180-day commercial paper.In order to reduce the interest rates by 25 basis points (per year) , it plans to back this issue with a standby letter of credit or a loan commitment.The standby letter of credit is available for 20 basis points (per year) to be paid up-front.The loan commitment for $10 million is available for an up-front fee of 15 basis points (per year) and a 5 basis points back-end fee. What are the savings to the corporation if it obtains a loan commitment to back its $10 million issue of commercial paper?

• A)$1,250.
• B)$2,500.
• C)$3,750.
• D)$5,000.
• E)$6,250

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