A corporation is planning to issue $1 million of 270 day commercial paper for an effective yield of 5 percent The corporation expects to save 30 basis points on the interest rate by using either an SLC or a loan commitment as collateral for the issue a What are the net savings to the corporation if...

a Cost of using SLC 00020 x 1000000 200000 Savings by using SLC as co ...

A corporation is planning to issue $1 million of 270-day commercial paper for an effective yield of

Question:

A is planning to issue $1 million of 270-day commercial paper for an effective yield of 5 percent. The expects to save 30 basis points on the interest rate by using either an SLC or a loan commitment as collateral for the issue.
a. What are the net savings to the if a bank agrees to provide a 270-day SLC for an up-front fee of 20 basis points (of the of the loan commitment) to back the commercial paper issue?
b. What are the net savings to the if a bank agrees to provide a 270-day loan commitment to back the issue? The bank will charge 10 basis points for an up-front fee and 10 basis points for a back-end fee for any unused portion of the loan. Assume the loan is not needed and that the fees are on the of the loan commitment.
c. Should the be indifferent to the two alternative collateral methods at the time the commercial paper is issued? Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...