Purchase Solution

Understanding the Savings using a Standby Letter of Credit (SLC)

Not what you're looking for?

Ask Custom Question

A corporation is planning to issue $1,000,000 of 270-day commercial paper for an effective yield of 5%. The corporation expects to save 30 basis points on the interest rate by using either an SLC or a loan commitment as collateral for the issue:

What are the net savings to the corporation if a bank agrees to provide a 270-day SLC for an up-front fee of 20 basis points to back the commercial paper issue?

Please explain the concepts.

Purchase this Solution

Solution Summary

The solution provides an excellent understanding of the concepts of using an SLC and the fees charged for the risk involved.

Solution Preview

Companies often issue CP's to finance their short term requirements. These are generally for less than a year.

In this problem, company is in need of $1,000,000 and might be expecting some cash flow (which is substantially more than a million dollars) in 270 days time.

Now, people at large are not sure whether the company would pay or default, so they ...

Purchase this Solution

Free BrainMass Quizzes
Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Operations Management

This quiz tests a student's knowledge about Operations Management

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.