Annualized percentage all-in-cost to firm x

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Firm X sells £5,000,000 of products to Firm Y. Payment would be due in six months. Since Firm X cannot find good credit information on Firm Y, Firm X wants to protect its credit risk. It is considering the following financing solution.

Firm Y's bank issues a letter of credit on behalf of Firm Y and agrees to accept Firm X's draft for £5,000,000, due in six months. The acceptance fee is 1.0% per annum of £5,000,000 that reduces Firm Y's available credit line by £5,000,000. The bankers' acceptance note of £5,000,000 would be sold at a 3.75% per annum discount in the money market. What is the annualized percentage all-in-cost to Firm X of this bankers' acceptance financing?

Reference no: EM133076065

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