# Quant Question

Mock:

The effective annualized cost (%) of a bankers acceptance that has an all-inclusive annual rate of 5.25% for a one month loan of \$2million is closest to?

So in the formula, you actually need to use the \$2 million, which i did not think we would. Also, can someone try to explain what is going on in english? The rate they give you is for the year, but the answer wants the rate for 1 month?

Thanks!

I did not understand the meaning of “all inclusive” annual rate

I arrived at 5.3782% as the answer, using the formula (1+r/m)^m - 1 to arrive at the answer.

Kindly let me know the correct solution and the method of arriving the same

Anyone?

Thanks!

I’ve never see any mention of the _ cost _ of bankers’ acceptances; where is it in the curriculum?

can’t seem to find it… either in CFA provided mock exam morning, or Schweser exam 1…

I’ll keep looking

hi, you have it explained in CFAI , open corp finance book 172 page…

This has been there since 2012 (at least).

Cost = (Interest + Dealer’s Commission + Backup Costs) / (Loan Amount - Interest)

OP - can you post the details of the question here?

Cool!

Lol. Focus on important stuff first else by the time June comes, you’ll struggle like I am doing right now.

This Cost = (Interest + Dealer’s Commission + Backup Costs) / (Loan Amount - Interest) is Commercial Paper

Banker’s acceptance is : Interest/ (Loan amount - interest)

Let the hostilities begin!

Meh… lower the brain-strain. The two formulas are virtually the same, with the dealer’s commission and any backup costs being zero in the case of an acceptance. The acceptance formula is simply a shorthand version of the commercial paper formula.

THIS IS NOT THERE FOR L1

why would we add “backup cost” to our revenue ? shouldn’t we subtract that ?

this is for L1 Dec 2013…