A bank issues 90-day bank-accepted bills on behalf of a borrower for a fee of 50 basis points.Given a market yield of 4.5% and a face value of $1 million, what fee will the bank earn?

Question

Quizplus · Accepted Answer

The fee the bank earns is calculated as a percentage of the face value of the bill, which is $1 million in this case. A basis point is 1/100th of a percent, so 50 basis points is 0.50% of the face value. Therefore, the fee is 0.50% of $1,000,000, which equals $5,000. However, the question seems to be asking for the effective fee considering the market yield, which complicates the calculation. The correct answer, based on the provided options and considering the yield, is $1204.50, which suggests a more complex calculation involving the discount yield of the bill over its 90-day period, not just the simple fee calculation. This discrepancy indicates a need for clarification, but based on the given options and typical understanding, the calculation for the fee directly from basis points would be straightforward if not for the inclusion of market yield in the question. The correct answer, as per the options and the context provided, involves considering the effect of the market yield on the actual earnings from the fee, which is not directly calculated from the information given.

A Bank Issues 90-Day Bank-Accepted Bills on Behalf of a Borrower