Assume the time from acceptance to maturity on a $1,000,000 banker's acceptance is 180 days.Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent.Calculate the amount the exporter will receive if he holds it to maturity.

Question

Quizplus · Accepted Answer

The exporter will receive the face value of the banker's acceptance at maturity, which is $1,000,000, minus the acceptance commission. The commission is 1.25% of $1,000,000, which is $12,500. Therefore, the amount received is $1,000,000 - $12,500 = $987,500. However, the market rate for 180-day B/As is 5.0%, which is already accounted for in the discounting process, so the exporter receives $993,750.

Assume the Time from Acceptance to Maturity on a $1,000,000