Assume the time from acceptance to maturity on a $1,000,000 banker’s acceptance is 180 days. Further assume that the importing bank’s acceptance commission is 1.25 percent and that the market rate for 180-day B/As is 5.0 percent. Calculate the amount the exporter will receive if he discounts the B/A with the importer’s bank.

A. $906,250
B. $993,750
C. $909,375
D. $968,750

ANSWER

D. $968,750