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Westminster Insurance Company.  Westminster Insurance Companyplans to sell $2,200,000 of eurocommercial paper with a 90​-day...

Westminster Insurance Company.  Westminster Insurance Company plans to sell $2,200,000 of eurocommercial paper with a 90-day maturity and discounted to yield 5.80% per annum. What will be the immediate proceeds to Westminster Insurance? Assume a 360-day year.

(a) The immediate proceeds to Westminster Insurance will be $____?

Solutions

Expert Solution

The immediate proceeds to Westminster Insurance will be​ computed as follows:

Face Value / Discount rate

Face Value = $ 2,200,000

Discount rate = ( 1 + ((days / 360) x (ytm)))

= ( 1 + ((90/360) x (0.058)))

= 1.0145

So by feeding these values in the above mentioned formula, we shall get proceeds equal to

= $ 2,200,000 / 1.0145

= $ 2,168,555.939

jeff jeffy answered 2 years ago
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