Commercial Paper Cost of Borrowing

CFA Level I
#1

Given interest rate, dealer’s commission and backup costs, I do not get how the formula to compute cost of borrowing for commercial paper would be:

(interest rate + dealer’s commission + backup costs)/(1 - interest rate)

Specifically, I do not get how the denominator is computed in this equation. It claims that the denominator is net proceeds, but why are we only subtract interest instead of all three costs associated with the commercial paper?

#2

Where are you getting this from? I could not find anything related in the curriculum.

There is only an example on p.374 of Reading 53 in the CFA curriculum that might help.

#3

Found this on a practice test from 2009.

#4

If it’s not in the 2016 curriculum, forget about it.