A company is planning to issue BABs next month for which their bank charges an acceptance fee of 110 basis points.They hedge their exposure using BAB futures at a price of 94.50.It turns out the 90-day rate at the time of issue is 5.65%.The company's cost of funds is:

Question

Quizplus · Accepted Answer

The company's cost of funds includes the acceptance fee of 110 basis points (or 1.10%) added to the 90-day rate of 5.65%. Therefore, the total cost of funds is 5.65% + 1.10% = 6.75%. However, there seems to be a mistake in the options provided as none directly match this calculation. Given the options, the closest and technically correct answer based on the calculation would be option C) 6.60%, assuming a minor discrepancy in the calculation or a typo in the options. However, based on the direct calculation, the expected answer should be 6.75%, which is not listed.

A Company Is Planning to Issue BABs Next Month for Which