A company operates a commercial paper programme to finance its short-term US dollar-denominated borrowing requirements. On 26th January 2018, the company sold paper with terms to maturity of 30 days, 182 days and 270 days. The table below lists US treasury bill yields and the basis point premiums over treasury yields being offered by each issue of commercial paper.   Days to Maturity Treasury Bill Discount Rate Basis Point Premium 30 days 1.4106% 40 basis points 182 days 1.6422% 71 basis points 270 days 1.7642% 85 basis points   Calculate the annualised discount rates and prices for the three commercial paper issues. Notional value of the paper is $100,000. For valuation purposes, assume a 360-day year.

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.