William Jones is evaluating three possible means of borrowing $1 million for one month:
1. Drawing down on a line of credit at 7.2% with a 1 /2 percent commitment fee on the
full amount with no compensating balances.
2. A banker’s acceptance at 7.1%, an all-inclusive rate.
3. Commercial paper at 6.9% with a dealer’s commission of 1 /4 % and a backup line cost
of 1 /3 %, both of these would be assessed on the $1 million of commercial paper issued.
Which of these forms of borrowing results in the lowest cost of credit?
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