In: Finance
An MNC makes a 60- day USD 50 million ECP issue. If the issue was priced at a discount of 4.2 percent (annualized, simple interest actual/ 360 convention) and fees totaled USD 200,000, what is the cost of financing? Format x.xx%
The required cost is the aggregate of discount amount and total fees.
Discount amount = Issue price × Annual rate × Days proportion
= $50,000,000 × 4.2% × (60 / 360)
= $350,000
Required cost = Discount amount + Total fees
= $350,000 + $200,000
= $550,000
Percentage expression of cost = (Required cost / Issue price) × 100
= ($550,000 / $50,000,000) × 100
= 1.10 %