Determine the amount exporter will receive until maturity

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Reference no: EM13829065

The time from acceptance to maturity on a $2,000,000 banker's acceptance is 90 days.

The importing bank's acceptance commission is 1.25 percent and that the market rate for 90-day B/As is 6 percent.

a. Determine the amount the exporter will receive if he holds the B/A until maturity.

b. Determine the amount the exporter will receive if he discounts the B/A with the importer's bank.

c. Determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter.

d. If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity?

e. Calculate the amount the importer’s bank will receive if the exporter discounts the B/A with its bank (the exporter’s bank).

Reference no: EM13829065

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