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Question
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 standby letter of credit to back its $10 million issue of commercial paper?
A. $1,250.
B. $2,500.
C. $3,750.
D. $5,000.
E. $6,250.
Answer
This answer is hidden. It contains 96 characters.
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