**Unformatted text preview: **-2 of 3 ID: FMW1.05.339.L
A 70 day Bank Accepted Bill (BAB) for $260,000 is sold to an investor at a simple yield of 13.27% pa with the borrower liable for an acceptance fee of 13 basis points.
a) Calculate the borrower's cost of funds. Give your answer as a percentage per annum to 2 decimal places.
Borrower's cost of funds = 2500 % pa
b) Calculate the amount the borrower received for issuing the BAB. Give your answer in dollars and cents to the nearest cent.
Proceeds from the BAB = $ 25500
c) Calculate the amount that the investor paid for the BAB. Give your answer in dollars and cents to the nearest cent.
Price of the BAB = $ 256000
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[0 out of 3]
a) This is not correct.
Borrower's cost of funds = 13.40% pa
b) This is not correct.
Proceeds from the BAB = $253,485.76
c) This is not correct.
Price of the BAB = $253,547.39
Calculation
a) The borrower's cost of funds equals the interest rate they must pay to the investor plus the basis point charges they must pay to the bank. Note that 100 basis
points equals 1 percentage point.
Borrower's cost of funds (%) = Investor's yield + Basis point fee
= 13.27 +
13
100
= 13.27 + 0.13
= 13.40% pa...

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