**Unformatted text preview: **The price can be calculated using the following formula: show variables
P
= S(1 + rt)-1
= 600,000 x (1 + 0.0236 x 0.47123288...)-1
= 600,000 * (0.98900122...)
= 593,400.73354085...
= $593,400.73
Rounded as last step
The investor purchased the BAB for $593,400.73. However, the bank's acceptance fee must now be subtracted from this amount to calculate the amount the
borrower receives.
Borrower's funds = P - Fee
593,400.73 - 2,411
=
$590,989.73
Therefore, the borrower received $590,989.73 from the sale of the BAB. The borrower's costs of funds (interest rate) can now be calculated based on the fact that
they received 590,989.73 and must pay back 600,000 in 172 days.
The cost of borrower's funds can be calculated using the following formula: show variables
5 = P(1 + rt)
(1 + rt) =
it
=
S
- 1
r (0.47123288...)
=
600,000
590,989.73
1
=
0.01524607...
r =
0.01524607...
0.47123288...
=
0.03235358...
Multiply by 100 to convert to a percentage
= 3.23535759...%
= 3.24% pa
Rounded as last step
Therefore, the borrower's cost of funds was 3.24% pa. Note that the acceptance fee increases the borrower's interest rate above that received by the investor
(2.36% pa)....

View
Full Document

- One '14