Marley Financial plans to sell $50,000,000 of 120-day commercial paper,on which it expects to pay discounted interest at a rate of 5% per year.Dealer fees are expected to be $30,000.The effective cost of credit to Marley Financial is

Question

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The effective cost of credit can be calculated by considering the discount interest and dealer fees. The discount on the commercial paper is $50,000,000 * 5% * (120/360) = $625,000. Adding the dealer fees of $30,000, the total cost is $655,000. The effective cost of credit is then ($655,000 / ($50,000,000 - $625,000)) * (360/120) = 5.27%.

Marley Financial Plans to Sell $50,000,000 of 120-Day Commercial Paper,on