AAC,Inc.is planning to issue $5,000,000 in 180-day maturity notes paying a rate of 12 percent per annum.The company expects to incur costs of approximately $20,000 in dealer placement fees and other expenses of issuing the commercial paper.The company plans to back up their commercial paper offering with a line of credit from a bank for $5,000,000.The compensating balance requirement is 10 percent of the line of credit.The company normally maintains $450,000 in its accounts with the bank.What is the effective cost of the commercial paper offering?

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The Answer of AAC,Inc.is planning to issue $5,000,000 in 180-day maturity notes paying a rate of 12 percent per annum.The company expects to incur costs of approximately $20,000 in dealer placement fees and other expenses of issuing the commercial paper.The company plans to back up their commercial paper offering with a line of credit from a bank for $5,000,000.The compensating balance requirement is 10 percent of the line of credit.The company normally maintains $450,000 in its accounts with the bank.What is the effective cost of the commercial paper offering?

AAC,IncIs Planning to Issue $5,000,000 in 180-Day Maturity Notes Paying