Suppose an importer uses a bankers acceptance in a trade. The amount of the bankers...
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Finance
Suppose an importer uses a bankers acceptance in a trade. The amount of the bankers acceptance is $1,000,000, with a bankers acceptance (B/A) rate of -0.45%. Alternatively, instead of using a bankers acceptance, the importer could use a prime-rate-based loan for the same amount. Both the loan and the bankers acceptance would have a term of one half of a year.
Complete the last row of the table, filling in the interest cost of the loan and the bankers acceptance.
Loan
Acceptance
Amount
$1,000,000
$1,000,000
Term
0.5 Years
0.5 Years
Rate
Prime + 1.50%
B/A Rate + 1.50%
1.05% + 1.50% = 2.55%
-0.45% + 1.50% = 1.05%
Interest Cost
The interest cost is higher for the .
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