Question

The time from acceptance to maturity on a $10,000,000 banker’s acceptance (B/A) is 90 days. The importer’s bank’s acceptance commission is 0.5 percent and the market rate for a 90-day B/A is 6.5 percent.

How much will the exporter receive if he discounts the B/A? Use a 360 day-count convention, similar to the formulas provided for chapter 20 calculations. Show your workings and the correct answer in the space provided below

One of the following answers will be correct:

a. $9,987,500

b. $9,987,671

c. $9,825,000

d. $9,827,397

Answer 1

Solution:-

To Calculate the amount the exporter receive if he discounts the B/A-

Amount = Banker's Acceptance * [1 - (Market Rate + Commission)( )]

Amount = $1,00,00,000 * [1 - (0.065+0.005)( ) ]

Amount = $1,00,00,000 * [1 - 0.0175]

Amount = $1,00,00,000 * 0.9825

Amount = $98,25,000.

the exporter receive if he discounts the B/A is $98,25,000.

The Correct Answer is point C i.e. $98,25,000.

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