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).