You are an exporter in possession of Banker's Acceptance (B/A). You are considering holding the B/A until maturity or selling it in the Money Market (MM).

If the face amount of the B/A is 10,000,000 USD, the acceptance commission is 2%, and the competitive MM rate for 90-day B/As is 5%.

What bond equivalent yield would make you indifferent between the MM and holding the B/A until maturity?

Note: for B/A calculations you can assume a banker's year (360 days), for bond calculations the convention is to use the actual number of days (365).

Explain any intermediary calculations. Also interpret and explain your conclusion.

Answer rating: 100% (QA)

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