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River Thames Insurance Company plans to sell $2,000,000 of euro-commercial paper with a 60-day maturity and discounted to yield 4.60% per annum (assume 60-day (or two month) compounding period). What will be the immediate proceeds to River Thames Insurance?

Respuesta :

saqib097

Answer:

Proceeds to River Thames Insurance equal $1,984,783

Explanation:

Proceeds to River Thames Insurance:

= Face value / Discount rate

= $2,000,000 /  (1 + ((days/360) x (ytm)))

=  $2,000,000 / 1.00766

= $1,984,783

TomShelby

Answer:

It receives 1,985,064.92

Explanation:

The answer can differ considering we use a 360 days year or a 365 days year.

In this case, we express time considering a 365 days year

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]  

Maturity  $2,000,000.0000

time  0.17 (60 / 365 days per year)

rate  0.04600

[tex]\frac{2000000}{(1 + 0.046)^{0.166666666666667} } = PV[/tex]  

PV   1,985,064.9214

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