Marketable securities portfolio but with interest rates up

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Reference no: EM13830598

Ralph, a treasurer for Ma nd M products, Inc., recently updated his firm's short-term cash forecast only to discover that the firm will suffer a cash shortabe of $15 million for a period of 30 days. One alternative is to liquidate a portion of his marketable securities portfolio but with interest rates up, this is not a good alternative. Ralph just learned from one of his comercial paper dealers that paper in the theirdy-day range is in demand and that asked discout rates are comparably good at about 3.7 percent. The dealer's annual fee is 10 basis points and the annual commitment fee on a back up line of credit is 25 basis points.

a. estimate the effective cost of the commercial paper assuming that this is only commercial paper issue planned for the year.

b. estimate the effective cost of the commercial paper assuming that there will be recurring issues of commercial paper all year long.

Reference no: EM13830598

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