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

---

Definitions:

Insurance Company Agent

An individual authorized to sell and manage insurance policies on behalf of an insurance company.

Broker

An individual or firm that acts as an intermediary between buyers and sellers, typically in financial transactions, real estate, or insurance.

Assumes a Risk

A legal doctrine where an individual knowingly exposes themselves to a hazard or danger and is considered to have consented to the risk involved.

Insurer

A company or entity that provides insurance policies to protect individuals or organizations against financial loss or damage.