Screenshot 2019-01-19 at 9.49.56 PM.png - The price can be calculated using the following formula show variables P = S(1 rt-1 = 600,000 x(1 0.0236 x

# Screenshot 2019-01-19 at 9.49.56 PM.png - The price can be...

• 1

This preview shows page 1 out of 1 page.

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

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern