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

question 15

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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.
-Which method is preferable, between the loan commitment and the standby letter of credit?


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